Louisiana Federal Court Grants Defendants’ Motion To Decertify Collective Action And Evidences A New Fifth Circuit Regime Post-Swales

By Gerald L. Maatman, Jr. and Emilee N. Crowther

Duane Morris Takeaways: In Moore v. MW Servicing, LLC, No. 20-CV-217 (E.D. La. Aug. 2, 2023), Judge Greg Guidry of the U.S. District Court for the Eastern District of Louisiana granted Defendants Motion to Decertify Plaintiffs’ Collective Action, holding that, pursuant to Swales v. KLLM Transportation Services, L.L.C., 985 F.3d 430 (5th Cir. 2021), Plaintiffs had not met their burden of establishing they were “similarly situated” to the opt-ins during the decertification stage.  The decision in Moore evidences the new Fifth Circuit regime in certifying/decertifying  collective actions post-Swales, in that it properly places the “similarly situated” burden in Plaintiff’s court at all relevant times. The ruling should be required reading for all businesses defending wage & hour litigation in the states comprising the Fifth Circuit.

Case Background

Defendants MW Servicing, LLC, WBH Servicing, LLC, Bruno, Inc., and Joshua Bruno (“Defendants”) own and operate various properties in Louisiana.  Plaintiffs Brittany Moore, Dmitry Feller, Jada Eugene, Christopher Willridge, and five opt-in Plaintiffs (“Plaintiffs”) worked for Defendants as property managers, leasing agents, leasing consultants, accounting managers, executive assistants, janitorial/maintenance workers, and babysitters.

Plaintiffs filed their a collective action (the “Complaint”) against Defendants on January 20, 2020, asserting Defendants failed to pay minimum wage under the Federal Labor Standards Act (“FLSA”), and failed to pay, or untimely paid, Plaintiffs their final checks under the Louisiana Wage Payment Act (“LWPA”).

The Lusardi v. Xerox Corporation Standard

At the time Plaintiffs filed their Complaint, the standard practice in federal courts to certify a collective action and send notice to potential opt-in plaintiffs followed the two-step process outlined in Lusardi v. Xerox Corporation, 116 F.R.D. 351 (D.N.J. 1987).

The first Lusardi step, also known as the “notice stage,” required courts to determine whether the named plaintiffs and potential opt-in plaintiffs were “similarly situated” solely on the basis of the pleadings and affidavits submitted by the parties.  Id. at 360-61.  Once the named plaintiffs met this lenient threshold, courts often granted conditional certification and notice was sent to the potential opt-ins.  Id.

The second Lusardi step, also known as the “decertification stage,” permitted defendants to move to decertify the conditional certification, but shifted the burden of establishing that plaintiffs are not “similarly situated” to defendants.  Id.

In Moore, Plaintiffs filed their motion for conditional certification on May 5, 2020.  Almost a year later, on March 15, 2021, the Court granted Plaintiffs’ Motion for Conditional Certification.

The Fifth Circuit’s Departure From Lusardi “Notice Stage” In Swales

In Swales v. KLLM Transport Services, L.L.C., 985 F.3d 430, 441 (5th Cir. 2021), the Fifth Circuit rejected Lusardi’s “notice stage” approach. The Fifth Circuit held that the text of the FLSA did not require a certification phase, and courts should instead determine at the outset of the case “what facts and legal considerations are material to determining whether Plaintiff and the proposed class are similarly situated.” (emphasis added).

Importantly, in rejecting Lusardi’s “notice stage” approach, the Fifth Circuit held that the burden of establishing that the plaintiffs and opt-ins are “similarly situated” rests with plaintiffs at all relevant times.  Id. at 443, n. 65 (“a plaintiff should not be able to simply dump information on the district court and expect the court to sift through it and make a determination as to similarity”).

On January 5, 2022, Defendants in Moore filed a motion to decertify the collective action. They asserted that Plaintiffs were not “similarly situated,” and the collective action should be decertified.

The Court’s Decision

On August 2, 2023, Judge Guidry granted Defendants motion to decertify on the grounds that Plaintiffs had not met their burden to establish they were “similarly situated” to the opt-ins. Moore, No. 20-217, at 7.

In reaching its decision, the Court acknowledged that while Swales rejected the traditional Lusardi “notice stage,” the Fifth Circuit clarified that the factors considered by courts in Lusardi’s “decertification stage” could “help inform or guide” courts “similarly situated analysis.”  Id. at 3 (citing Loy v. Rehab Synergies, L.L.C., 71 F 4th 329, 336-37 (5th Cir. 2023)).  Thus, even though Lusardi’s “notice stage” had been employed in this case, the Court elected to impose Swales for the decertification stage and required Plaintiffs to establish that they had met the “similarly situated” requirement of the FLSA.  Id.

The court considered three factors, including: “(1) the disparate factual and employment settings of the individual plaintiffs; (2) the various defenses available to defendant which appear to be individual to each plaintiff; [and] (3) fairness and procedural considerations.”  Id. at 3 (quoting Thiessen v. Gen. Elec. Capital Corp., 267 F.3d 1095, 1103 (10th Cir. 2001)).

As to the first factor, the Court noted substantial differences existed between the plaintiffs and opt-ins’ method of payment (salary versus hourly), employer (all worked for different entities), job titles, and the asserted wrongful acts of Defendants.  Id. at 5-6.  As to the second factor, the Court found that too many individualized claims remained in the matter (such as joint employment, good faith and willfulness, common policies, and salary status), which would necessarily require individualized defenses.  Id. at 6.  As to the final factor, while the Court acknowledged that the plaintiffs and opt-ins did have some overlapping common issues, “other methods of managing [the] litigation to the benefit of judicial efficiency” existed.  Id.

Ultimately, the Court found that a single trial of all plaintiffs’ claims would “result in confusion both for the jury and management of the trial itself,” and granted Defendants’ motion to decertify the collective action.  Id. at 7.

Implications for Employers

In the Fifth Circuit pre-Swales, plaintiffs’ counsel could readily establish that plaintiffs and opt-ins were “similarly situated” during the notice stage by presenting minimal evidence.  After plaintiffs’ counsel met this low threshold and conditional certification was granted, employers were left with two options: (1) expend significant resources to conduct extensive discovery in pursuit of establishing that plaintiffs and opt-ins were not “similarly situated”; or (2) settle.  Thus, until Swales, Plaintiffs’ counsel were able to utilize employers’ looming financial burden to unfairly obtain settlements on the basis of threadbare evidence.

Post-Swales, however, district courts in the Fifth Circuit are required to “rigorously scrutinize the realm of ‘similarly situated’ workers, [at] the outset of the case, not after a lenient, step-one ‘conditional certification.’”  Swales, 985 F.3d at 434.  By placing the FLSA’s “similarly situated” burden on Plaintiffs, this ensures that collective action complaints can no longer be used as fishing expeditions, and reduces the likelihood that frivolous lawsuits are filed.

Since Swales, the Sixth Circuit in Clark v. A&L Homecare and Training Center, LLC, 68 F.4th 1003, 1009 (6th Cir. 2023), similarly rejected Lusardi’s two-step certification approach, but elected not to adopt Swales “rigorous scrutiny” standard.    Instead, the Sixth Circuit held that notice must only be sent to potential plaintiffs if they show “a ‘strong likelihood’ that those employees are similarly situated to the plaintiffs themselves.” Id. at 1011.

While at present only the Fifth and Sixth Circuits have departed from the longstanding Lusardi standard, other circuits may follow suit, and depending on how many circuits “jump ship” from Lusardi, the issue may soon be ripe for judicial review with the U.S. Supreme Court.

The Class Action Weekly Wire – Episode 24: WARN Act Class Actions


Duane Morris Takeaway:
This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and associate Tyler Zmick with their discussion of recent developments in WARN class action litigation spurred by the COVID-19 pandemic and its impact on the global workforce.

Episode Transcript

Jennifer Riley: Thank you for being here again, for the next episode of our Friday weekly podcast, the Class Action Weekly Wire. I’m Jen Riley, partner at Duane Morris, and joining me today is Tyler Zmick. Thank you for being on the podcast, Tyler.

Tyler Zmick: Thank you, Jen. Great to be here, thanks for having me.

Jen: So today we wanted to discuss trends and important developments in Worker Adjustment and Retraining Notification Act, or WARN Act class action litigation. So class actions brought under the WARN Act remain an area of key focus for skilled class action litigators in the plaintiffs’ bar. In recent years, dozens of COVID-19-related lawsuits have been filed under the WARN Act, as well as under state counterparts to the WARN Act, and new class actions are being filed almost daily. The mass layoffs that arose in the aftermath of the pandemic and related to quarantines and those spawned countless WARN Act class actions, resulting in courts having issued several significant decisions in that area – in COVID-19-related WARN Act cases, including rulings that can shape the contours of future WARN Act class action litigation beyond the pandemic and for years to come.

Tyler, can you explain to our listeners some of the requirements for employers under the WARN Act?

Tyler: Absolutely. So, the WARN Act requires employers to give written notice to affected employees at least 60 days before conducting a plant closing or mass layoff at a single site of employment. Now as you’d expect, the statute has very specific definitions of each of those teams. A “plant closing” is the permanent or temporary shutdown of a single site of employment or one or more facilities or operating units within that site of employment where the shutdown results in an “employment loss” during any 30-day period for at least 50 full-time employees. A “mass layoff” is a reduction in force – sometimes called a “RIF” – that is not a plant closing and results in an employment loss at a single site of employment during any 30-day period for either A) at least 50 full-time employees who comprise at least 33 percent of the employee population, or B) 500 or more full-time employees. The WARN Act regulations require aggregation of employment losses at a single site of employment during a rolling 90-day period, which in essence extends the statute’s 30-day period to 90 days. And the statue has teeth in the sense that covered employers that do not satisfy the statute’s requirements, or qualify for an exemption, can be liable to affected employees for back pay and benefits.

Jen: Thanks so much Tyler for that great overview. In terms of class action litigation relating to the WARN Act, how often do courts or are courts certifying these types of cases?

Tyler: In short – very, very often. In the year 2022, plaintiffs’ lawyers actually won every single motion for class certification that was filed in a WARN Act case pending in federal court. And the jurisdictions where those rulings were issued were clustered in the Third, Fourth, and Eleventh Circuits.

Jen: Wow, pretty good success rate! Can you tell our listener about some of the most significant rulings in the WARN class action space?

Tyler: Sure. So, one case from 2022 involving Rule 23 in the context of a WARN Act class action is Jones, et al. v. Scribe Opco, Inc. The plaintiff filed a class action alleging that the defendant, his former employer, violated the WARN Act when he and other employees were furloughed due to the COVID-19 pandemic. The plaintiff claimed that while the employer gave notice of the initial furlough, the defendant employer failed to provide a follow-up notice once it became reasonably foreseeable that the furlough/layoff would exceed six months. The court granted the plaintiff’s motion for class certification, finding that all the requirements for Rule 23 were satisfied. The court determined that the putative class of 344 people met the numerosity requirement. The court further ruled that although the determination of each class member’s damages would be individualized based on their rate of pay and the benefits to which they were entitled, all of the class members’ claims involved the same legal questions. Specifically, the court ruled that common questions underlying the elements of the WARN Act claim and the defendant’s affirmative defenses were common and predominated over any individual issues. Finally, the court concluded that the plaintiff met the superiority requirement of Rule 23 because of the small individual values of the respective claims for class members, and the fact that it would be difficult to have potentially dozens of individual WARN actions filed by affected employees.

Jen: Thanks, Tyler. So one question that intrigues me in terms of WARN Act litigation is this question of what is this “single site of employment” and how does that bear when employees are working from home. So as the pandemic has spurred this trend and great rise of remote work, how does that “single site of employment” test apply? Do you have any rulings that address that question?

Tyler: Yes, absolutely. A case that got a lot of attention in the legal media is Piron, et al. v. General Dynamics Information Technology Inc., which was issued in 2022. In this case the court analyzed what constitutes a “single site of employment” under the WARN Act for employees who remotely, and the court analyzed that statutory term in the context of a motion for class certification under Rule 23(b)(3). So in the Piron case, the proposed class consisted of remote employees who had worked under the employer’s Flexible Work Location policy. Under that policy, employees could work from a company-provided setting (e.g., an office) or from an alternative setting like their home. Employees frequently moved from location to location to conduct their work duties depending on their schedules and where they preferred to be that day. When the defendant laid off the employees, many of whom who fell into that group who were subjected to the policy, the employees filed a class action against the defendant under the WARN Act, asserting they were not given the 60 days’ notice required for “mass layoffs” occurring at a “single site of employment.” In opposing class certification, the defendant argued that the putative class could not show that questions of law and fact for the class “predominate” over the same questions for the individual plaintiffs. Specifically, the defendant argued that the plaintiffs did not work at a “single site of employment” and thus could not trigger the WARN Act’s notice requirements for mass layoffs. Instead, the court would have to look at each class member’s individual situation to determine his or her place of employment. For example, for each class member you’d have to look at how often they work in the office versus at home or some other location. The court rejected the defendant’s predominance argument, and ruled that the class could be certified under Rule 23(b)(3). So in its ruling, the court emphasized that the remote-work policy applied to all employees, and this policy would guide its determination of what constituted the site of employment for each employee. Meaning the critical inquiry – the application of the remote work policy and its application to the work arrangements of the employees – would be common to all potential class members, even if some class members utilized that policy a little bit differently. This case illustrates one potential pitfall that can arise with the shift from an office workforce to a remote or hybrid workforce – and that pitfall is the possibility of layoffs to a remote or hybrid work force triggering WARN Act liability. It also highlights how the use of a common remote work policy for remote workers can potentially render a class of workers sufficiently similar for purposes of Rule 23 class actions.

Jen: Very interesting ruling. How about any issues or rulings on exemptions provided to employers under the WARN Act?

Tyler: Sure – so this is the last case I’ll go over for today’s video blog, and it’s a significant one issues by the Fifth Circuit where the court provided guidance regarding the “Natural Disaster” Exception to the WARN Act. The case was Easom, et al. v. US Well Services, Inc., in which the Fifth Circuit held that COVID-19 does not qualify as a natural disaster under the WARN Act’s natural disaster exception. So as background, in that case the plaintiffs filed a WARN Act class action claiming that the defendant terminated their employment without the 60-day noticed required by the WARN Act. The defendant, US Well, argued that the termination was caused by COVID-19, and therefore notice of the layoff with 60-day notice was not required due to the WARN Act’s natural-disaster exception. Both the plaintiff and defendant in the trial court moved for summary judgment on that issue regarding the exception. The district court denied both motions. In doing so, the trial court concluded that COVID-19 was a natural disaster because people did not start or consciously spread it and it was a disaster based on how many people were killed or infected. The trial court nonetheless denied the defendant’s motion for summary judgment because the exception in the WARN Act uses a but-for causation standard and the court found that the record did not show that COVID-19 was the but four cause of the layoffs – meaning other factors could have been in play as for what led to the layoffs. On appeal, the Fifth Circuit basically disagreed with the trial court’s entire order. The Fifth Circuit held that COVID-19 does not qualify as a natural disaster and in doing so the appellate court narrowly construed the statutory language which limits examples of natural disasters to “flood, earthquake, or drought” and other hydrological, geological, and meteorological events. The Fifth Circuit also examined whether the phrase “due to” in the natural disaster exception requires but-for or proximate causation and unlike the trial court, the Fifth Circuit determined that the natural disaster exception incorporates proximate causation not but-for causation.

Jen: Great insights and analysis Tyler, thank you so much. I know that these are only some of the cases that had very interesting rulings in WARN Act class actions over the past year. The remainder of 2023 is sure to give us some more insights and more examples of the way that class actions are continuing to evolve in this space. That brings us to our conclusion, thanks to our listeners for joining us today – we’ll see you on the next edition of the Class Action Weekly Wire.

West Virginia Federal Court Finds Lack Of Involvement By Defendant In Alleged Class Action Solicitation Does Not Preclude Personal Jurisdiction Or Article III Standing 

Gerald L. Maatman, Jr., Jennifer A. Riley, and Nick Baltaxe

Duane Morris Takeaways: On July 18, 2023, in Mey v. Levin, Papantonio, Rafferty, Proctor, Buchanan, O’Brien, Barr & Mougey, P.A., et al., Case No. 5:23-CV-46 (N.D. W. Va. July 18, 2023), the Court denied a motion to dismiss Plaintiff’s claims for alleged violations of the Telephone Consumer Protection Act (the “TCPA”).  In doing so, the Court held that, despite the fact that Levin Law did not direct and was not involved in the alleged calls, the Court had personal jurisdiction over Levin Law, and Plaintiff had Article III standing to pursue the TCPA claims.  In doing so, the Court found allegations concerning the law firm’s alleged agency relationship with a co-defendant sufficient to confer broad authority to adjudicate Plaintiff’s claims against Levin Law under the TCPA.  Additionally, the Court concluded that Plaintiff had alleged sufficient facts to support a do-not-call claim under the TCPA by alleging that her cell phone was a residential phone on the National Do-Not-Call Registry. 

Case Background

Plaintiff Diana Mey, a resident of West Virginia, initiated this lawsuit against two law firms, Levin Law and Principal Law Group, LLC, alleging that those defendants violated the TCPA by soliciting clients for a mass tort litigation related to toxic water exposure at Camp Lejeune.  Mey, Doc. 33 at 1-2.  Defendant Levin Law filed a motion to dismiss on numerous grounds, including that the Court lacked personal jurisdiction, that Plaintiff lacked Article III standing, that Plaintiff failed to plead direct or vicarious liability, and that Plaintiff failed to plead a violation of the TCPA.  Id.  The Court denied the motion.  Id.  Specifically, Levin Law argued that it was not directly involved in any of the phone calls, which were made by co-defendant MCM Services Group, LLC (“MCM”), and therefore could not be sued for violation of the TCPA.  Id. at 8.

Initially, Levin Law, a Florida professional corporation with a principal place of business in Pensacola, Florida, argued that it did not have sufficient minimum contacts with West Virginia because it did not purposely direct the alleged tortious activity toward the state.  Id. While the Court acknowledged that Levin Law was not directly involved in the telephone calls placed to Plaintiff, it held that Plaintiff had provided sufficient facts to find that the calls were made by an agent under Levin Law’s control.  Id. at 12.  Specifically, the Court noted that Plaintiff allegedly received a representation agreement from Principal Law, under which Levin Law would provide legal services to Plaintiff, and Principal Law would serve as Levin Law’s associate counsel.  Id.  The Court found that these allegations were sufficient to plausibly connect Levin Law to the alleged calls.  In a final point regarding personal jurisdiction, the Court did not address whether it had personal jurisdiction over out-of-state class members noting that, to proceed with the case, it needed to find personal jurisdiction only over the named Plaintiff and Defendants.  Id. at 13.

The Court then addressed Levin Law’s argument that Plaintiff did not have Article III standing.  Specifically, Levin Law argued that the calls, which were initiated by MCM, were not traceable to any conduct by Levin Law, which was a necessary prong in establishing Article III standing.  Id.  The Court, however, noted that because the representation agreement identified Principal Law as Levin’s Law associate counsel, and Plaintiff received the agreement from Principal Law, the Court reasonably could infer that the calls were made by someone under Levin Law’s control.  Id. at 14.  As such, the Court found that Plaintiff had pled sufficient facts to trace the challenged conduct to the defendant and, as such, had asserted Article III standing.

The Court addressed Levin Law’s final arguments that Plaintiff failed to plead a theory of liability against it and, further, failed to state a do-not-call claim under the TCPA.  First, the Court held that Plaintiff asserted sufficient factual allegations to show vicarious liability and to survive a Motion to Dismiss.  Id. at 15.  Second, the Court found no case law supporting dismissal of a TCPA claim on the basis that the defendant allegedly placed a call to a cell phone instead of a residential phone.  Id. at 17.  Specifically, the Court noted that Plaintiff had alleged that her cell phone was used for residential purposes and was placed on the National Do-Not-Call Registry, making the claim actionable under the TCPA.  Id. 

Key Takeaways

In this ruling, the Court made interesting findings that will extend to plaintiffs outside the TCPA context to survive attacks at the pleading stage of litigation.  Specifically, the Court found both personal jurisdiction and Article III standing despite the fact that Levin Law did not purposefully direct the activity at issue.  By doing so, the Court agreed with arguments that the conduct of an alleged agent was enough to establish both personal jurisdiction and Article III standing.  Going forward, plaintiffs will have yet another way to support personal jurisdiction and Article III standing at the outset of the case even against defendants who they do not contend were directly involved in the conduct about which they complain.  Additionally, while there is a split in authority as to whether the TCPA extends to wireless telephone numbers, the Court in this litigation had no issue finding that a cell phone could be a residential phone for purposes of the TCPA, potentially extending its reach and keeping it relevant as a potential source of claims against corporate defendants.

EEOC Issues New ADA Guidance On Visual Disabilities And Discussing AI Impact

By Alex W. Karasik, Gerald L. Maatman, Jr., and George J. Schaller

Duane Morris Takeaways:  On July 26, 2023, the EEOC issued a new Guidance entitled “Visual Disabilities in the Workplace and the Americans with Disabilities Act” (the “Guidance”).  This document is an excellent resource for employers, and provides insight into how to handle situations that may arise with job applicants and employees that have visual disabilities. Notably, for employers that use algorithms or artificial intelligence (“AI”) as a decision-making tool, the Guidance makes clear that employers have an obligation to make reasonable accommodations for applicants or employees with visual disabilities who request them in connection with these technologies.

The EEOC’s Guidance

The EEOC’s Guidance endeavors to address four subjects, including: (1) when an employer may ask an applicant or employee questions about a vision impairment and how an employer should treat voluntary disclosure; (2) what types of reasonable accommodations applicants or employees with visual disabilities may need; (3) how an employer should handle safety concerns about applicants and employees with visual disabilities; and (4) how an employer can ensure that no employee is harassed because of a visual disability.

The EEOC notes that if an applicant has an obvious impairment or voluntarily discloses the existence of a vision impairment, and based on this information, the employer reasonably believes that the applicant will require an accommodation to perform the job, the employer may ask whether the applicant will need an accommodation (and, if so, what type). Some potential accommodations may include: (i) assistive technology materials, such as screen readers and website accessibility modifications; (ii) personnel policy modifications, such as allowing the use of sunglasses, service animals, and customized work schedules; (iii) making adjustments to the work area, including brighter lighting; and (iv) allowing worksite visits by orientation, mobility, or assistive technology professionals.

For safety concerns, the Guidance clarifies that if the employer has concerns that the applicant’s vision impairment may create a safety risk in the workplace, the employer may conduct an individualized assessment to evaluate whether the individual’s impairment poses a “direct threat,” which is defined as, “a significant risk of substantial harm to the health or safety of the applicant or others that cannot be eliminated or reduced through reasonable accommodation.”  For harassment concerns, the EEOC notes that employers should make clear that they will not tolerate harassment based on disability or on any other protected basis, including visual impairment.  This can be done in a number of ways, such as through a written policy, employee handbooks, staff meetings, and periodic training.

Artificial Intelligence Implications

As we previously blogged about here, the EEOC has made it a priority to examine whether the use of artificial intelligence in making employment decisions can disparately impact various classes of individuals.  In the Q&A section, the Guidance tackles this issue by posing the following hypothetical question: “Does an employer have an obligation to make reasonable accommodations to applicants or employees with visual disabilities who request them in connection with the employer’s use of software that uses algorithms or artificial intelligence (AI) as decision-making tools?”According to the EEOC, the answer is “yes.”

The Guidance opines that AI tools may intentionally or unintentionally “screen out” individuals with disabilities in the application process and when employees are on the job, even though such individuals are able to do jobs with or without reasonable accommodations. As an example, an applicant or employee may have a visual disability that reduces the accuracy of an AI assessment used to evaluate the applicant or employee. In those situations, the EEOC notes that the employer has an obligation to provide a reasonable accommodation, such as an alternative testing format, that would provide a more accurate assessment of the applicant’s or employee’s ability to perform the relevant job duties, absent undue hardship.

Takeaways For Employers

The EEOC’s Guidance serves a reminder that the Commission will vigorously seek to protect the workplace rights of individuals with disabilities, including those with visual impairments. When employers are confronted with situations where an applicant or employee requests reasonable accommodations, the Guidance provides a valuable roadmap for how to handle such requests, and offers a myriad of potential solutions.

From an artificial intelligence perspective, the Guidance’s reference to the use of AI tools suggests that employers must be flexible in terms providing alternative solutions to visually impaired employees and applicants. In these situations, employers should be prepared to utilize alternative means of evaluation.

The Class Action Weekly Wire – Episode 21: State Court Class Action Litigation

 

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and special counsel Brandon Spurlock with their analysis of key trends and notable rulings throughout class action litigation at the state court level.

Episode Transcript

Jennifer Riley: Thank you for being here again, for the next episode of our Friday weekly podcast, the Class Action Weekly Wire. I’m Jennifer Riley, partner at Duane Morris, and joining me today is special counsel Brandon Spurlock. Thank you, Brandon, for being on the podcast.

Brandon Spurlock: Great to be here, Jen.

Jen: So today we wanted to discuss trends and important developments in state court class action litigation, since the decision on where to file a class action will always be an important strategic decision for plaintiffs’ lawyers – especially those seeking to maximize their odds for class certification, as well as seeking larger verdicts, settlements, and things of that nature. Whether it is between state or federal court, or deciding in which particular to state to file, many factors impact this decision. Brandon, can you tell our listeners what some of those factors are?

Brandon: Sure. Although almost all state law procedural requirements for class certifications mirror Rule 23 of the Federal Rules, the plaintiffs’ bar often perceives state courts as having a more positive predisposition toward their clients’ interests, particularly where putative class members have connections to the state or when the events at issue occurred in the state where the action is filed. But beyond forum shopping between state and federal court, the plaintiff’s bar also seeks out individual states that are believed to be “plaintiff friendly” such as California, Georgia, Florida, Illinois, Louisiana, Massachusetts, Missouri, to name some others – these are all among the leading states where plaintiffs’ lawyers file a volume of class actions. These courts are thought to have more relaxed procedural rules related to discovery, consolidation, and class certification, a lower bar for evidentiary standards, higher than average jury awards, among other considerations. All of this incentivizes forum-shopping related to state class actions.

 

Jen: In reviewing key state court class action decisions and analyzing class certification rulings, it seems that many state courts tend to apply a fairly typical Rule 23-like analysis, similar to the analysis we would see in federal court, although many state decisions also focus on the underlying claims at issue to address whether a class certification is appropriate and whether the matter should proceed on a class basis. Nevertheless, that said, understanding how state courts apply those respective Rule 23 analyses under the applicable state procedural law is really crucial I think toward effectively navigating those complexities and developing effective defense strategies in these types of lawsuits.

Brandon: Jen, I think that’s absolutely right. Another important topic for companies is state private attorney general laws. In particular, California’s controversial Private Attorneys General Act that we all know as PAGA. PAGA authorizes workers to file lawsuits to recover civil penalties on behalf of themselves, and other employees in the State of California for state labor code violations. Although California is the only state to have enacted this type of law so far, several other states are considering their own similar private attorney general laws, including New York, Washington, Oregon, New Jersey, and Connecticut. So it will be crucial to monitor state legislation on this topic given the impact such laws will have on class litigation strategy.

 

Jen: Absolutely – and we will continue to monitor all those developments and getting them out to listeners of the podcast as well as readers of the blog as they occur. Brandon, were there any key rulings from your perspective in specific state courts in 2022, going into 2023?

Brandon: Well, California being the epicenter of class actions filed in state courts – it’s a state that has more class action litigation than any other state. So needless to say we got some important rulings out of California. While all varieties of class-wide cases are filed in California, a high majority are consumer fraud and employment-related. Even when an employer’s written, formal policies appear facially neutral and compliant, employees may successfully seek class certification for demonstrating common issues where an employer’s practices and protocols allegedly violate law. So you asked about some key cases – one, in Cruz, et al. v. Health, the plaintiff filed a class action against his former employer for wage and hour violations stemming from defendant allegedly utilizing a time rounding policy that systemically resulted in uncompensated hours worked, as well as for failing to provide the plaintiff and other hourly employees with full, uninterrupted meal periods in compliance with the California Labor Code. So in this case, the plaintiff also brought derivative claims for inaccurate wage statements, failing to pay all wages due, and violations of California Business & Professions Code, as well as penalties under the PAGA. The court granted the plaintiff’s motion to certify his rounding-time, meal period, and derivative claims. In certifying the class for the “rounding policy” claim, the court reasoned that the plaintiff’s theory of liability – that the defendant’s policy of rounding employees’ time punches to the nearest quarter-hour increment resulted in employees’ systematic under compensation – presented common questions of law and fact that predominated over the individualized issues that might arise, including the calculation of damages to which each putative class member might be entitled. So, with respect to the meal period claims, the court agreed that while the defendant’s formal, written meal break policy may comport with California law, this fact alone did not preclude class certification. The plaintiff presented evidence of numerous meal break violations, including missed, short, and late employee breaks, which the court found sufficient to establish a rebuttable presumption that defendant had a “de facto policy” that failed to provide putative class members with compliant meal periods, and constituted a predominant question appropriately resolved on a class-wide basis. Having determined the rounding time and meal period claims appropriate for class certification, the court also certified the plaintiff’s derivative claims, concluding that they too involved common questions of law or fact also suitable for certification.

Jen: Thanks Brandon. Another key example of a PAGA ruling from last year occurred in a case called Estrada, et al. v. Royalty Carpet Mills, Inc. In that case were a group of hourly workers at the defendants’ carpet manufacturing facilities, brought claims primarily based on purported meal and rest break violations. Following a bench trial and an appeal, the California court of appeal addressed several issues, including: (i) the defendants’ policy of requiring workers to stay on premises during paid meal breaks; and (ii) the trial court striking of the PAGA claims based on manageability concerns. Regarding the meal break question, the defendant in that case had a policy of paying workers their regular wages during meal periods, but did not give them premium pay for having to remain on the premises. The defendants argued the on-premises meal policy was lawful because the employees were relieved of duty and paid wages during the meal period. The court of appeal ultimately disagreed with that argument – it opined that employers must afford employees uninterrupted half-hour periods in which they are relieved of any duty or employer control and are free to come and go as they please, and if an employer does not provide an employee with a compliant meal period, then the employer had to provide the employee with premium pay for the violation. Turning to the trial court’s dismissal of the representative PAGA meal period claim due to unmanageability, which is probably an even more crucial part of the decision, the court of appeal addressed the question of whether the PAGA has a manageability requirement similar to class actions. The court of appeal stated that a representative action under the PAGA is not a class action, but rather an administrative law enforcement action where the legislative purpose is to augment the limited enforcement capacity or capability of the Labor Workforce Development Agency (“LWDA”) by empowering employees to enforce the Labor Code as representatives of the Agency. The court reasoned that allowing courts to dismiss PAGA claims based on manageability concerns would actually interfere with the PAGA’s express design as a law enforcement mechanism, and create this extra hurdle that does not apply, and should not apply, to LWDA enforcement actions.

Brandon: Jen that was fantastic and insightful analysis. Florida was a state where the courts were disinclined to allow plaintiffs to proceed on a class-wide basis on claims related to the COVID-19 pandemic. There have a been a lot of class actions on the court docket that are related the pandemic. In University Of Florida Board Of Trustees v. Rojas the plaintiff, a graduate student, filed a class action asserting claims for breach of contract and unjust enrichment related to paid fees not refunded following the campus shut-down due to COVID-19. To support the breach of contract claim, the plaintiff filed a copy of the University’s financial liability agreement; an estimate of tuition and fees for the 2019-2020 academic year; and the plaintiff’s tuition statement showing he paid his tuition and fees for the Spring 2020 semester. The complaint also cited to various university webpages that contained general statements or descriptions of various campus amenities. The plaintiff, on behalf of a class of other students, asserted that these documents, in the aggregate, made up an express written contract between him and the university for specific on-campus resources and services during the relevant time period. However, the trial court dismissed the unjust enrichment claim, but allowed the contract claim to move forward. The Florida court of appeal then disagreed. It ruled that the “hodge-podge” of documents did not constitute an express written contract sufficient to overcome sovereign immunity enjoyed by the university. The court of appeal further found that the liability agreement merely conditioned a student’s right to enroll upon the agreement to pay tuition and fees, and although the agreement mentioned the provision of “educational services,” that general phrase fell far short of conveying an express promise by the university to provide in-person or on-campus services to a student at any specific time. For these reasons, the court of appeal reversed and remanded to the trial court for entry of judgment in favor of the university on the basis that sovereign immunity barred the action.

Jen: The last one I wanted to mention, because it really was a novel situation, was a ruling from Massachusetts that addressed the issue when the named plaintiff dies before class certification. The case is Kingara, et al. v. Secure Home Health Care Inc. In that case the plaintiff, a licensed practical nurse, filed suit against the defendant, an in-home care provider for the elderly, alleging causes of action arising under the state wage act, minimum fair wage law, and overtime law. The plaintiff died before the plaintiff’s counsel had filed a motion for class certification. Thereafter, the plaintiff’s counsel filed a motion to send notice to the putative class informing them of the plaintiff’s death and inviting them to join the action. The plaintiff’s counsel also sought an order requiring the defendant to identify the putative class members’ names and addresses and extend the tracking order deadlines to allow substitution of another putative class representative. The trial court granted the motions, and the defendant appealed. The Massachusetts Supreme Judicial Court explained that, upon a client’s death, the lawyer’s authority to act for the client terminates. So because the plaintiff had not filed a motion for class certification before he died, the plaintiff’s counsel could not take further action absent a motion by the deceased plaintiff’s legal representative. In addition, although counsel for a certified class has a continuing obligation to each class member – again here, there was not a certified class –  the appeals court concluded that counsel does not have any authority to act for a putative class when no motion for class certification was pending, counsel had not located the deceased client’s representative, and counsel had not identified any other putative class member to serve as a putative class representative.

Brandon: Very interesting ruling Jen. It’s not often your plaintiff in the class action is going to pass away during the litigation, but definitely a good one for corporate counsel to note in the event that situation happens to them in the future.

Jen: Thanks so much, Brandon. Great insights and analysis Brandon. I know that these are only some of the cases that had generated some really interesting rulings in the myriad types of class action litigation pending across the country. 2023 is sure to give us some exciting rulings as well that we will look forward to blogging about and presenting on in future installations of the Class Action Weekly Wire. Thanks everyone for joining us today – great to have you here.

The First Circuit Finds Article III Standing Requirements Met In Data Breach Class Action

By Gerald L. Maatman, Jr., Alex W. Karasik, and George J. Schaller

Duane Morris Takeaways: In Webb et al. v. Injured Workers Pharmacy, LLC, No. 22-1896, 2023 U.S. App. LEXIS 16650 (1st Cir. June 30, 2023), the First Circuit reversed a district court’s ruling finding that Plaintiffs’ complaint plausibly alleged a concrete injury in fact where Defendant misused personally identifiable information, affirmed the district court’s ruling on injunctive relief , and remanded the case for further proceedings consistent with its First Circuit’s findings. For employers facing data breach class actions, this decision is instructive in terms of what courts consider for Article III standing requirements and, in particular, the “injury in fact” and “concrete harm” requirements.

Case Background

Alexis Webb and Marsclette Charley (“Plaintiffs”) brought a putative class action against Defendant, Injured Workers Pharmacy, LLC (“IWP” or “Defendant”), asserting various state law claims related to a data breach that allegedly exposed their personally identifiable information (“PII”) and the PII of over 75,000 other IWP patients.  Id. at *2.  In January 2021, IWP suffered a data breach.  Id. at *3.  Plaintiffs’ complaint alleged hackers infiltrated IWP’s patient record systems and gained access to the PII of over 75,000 IWP patients, and stole PII including patient names and Social Security numbers.  Id.  As a result of the breach, Plaintiff Webb alleged she “fears for her personal financial security and [for] what information was revealed in the [d]ata [b]reach,” she “has spent considerable time and effort monitoring her accounts to protect herself from identity theft,” and she “is experiencing feelings of anxiety, sleep disruption, stress and fear.”  Id. at 4-5.  In 2021, Webb’s PII was used to file a fraudulent 2021 tax return.  Id. at *5.  Plaintiff Charley alleged that she, “fears for her personal financial security,” “expends considerable time and effort monitoring her accounts to protect herself from identity theft,” and “is experiencing feelings of rage and anger, anxiety, sleep disruption, stress, fear, and physical pain.”  Id.

On May 24, 2022, Plaintiffs filed a class action complaint against IWP in the U.S. District Court for the District of Massachusetts, and invoked the court’s jurisdiction under the Class Action Fairness Act of 2005 (“CAFA”).  Id. at *5-6.  The complaint asserted state law claims for negligence, breach of contract, unjust enrichment, invasion of privacy, and breach of fiduciary duty.  Id. at 6.  The complaint sought damages, an injunction “enjoining IWP from further deceptive and unfair practices and making untrue statements about the [d]ata [b]reach and the stolen PII,” “other injunctive and declaratory relief … as is necessary to protect the interests of [the] [p]laintiffs and the [c]lass”, and attorneys’ fees.  Id.  Plaintiffs also sought to certify a class of U.S. residents whose PII was compromised during the data breach.  Id.

On August 9, 2022, IWP moved to dismiss the complaint for lack of Article III standing, under Rule 12(b)(1), and for failure to state a claim as to each of the complaint’s asserted claims, pursuant to Rule 12(b)(6).  Id.  Plaintiffs opposed the motion.  On October 17, 2022, the district court granted IWP’s motion and dismissed the case under Rule 12(b)(1).  Id.  The district court concluded that Plaintiffs lacked Article III standing because their complaint did not plausibly allege an injury in fact.  Id.  The district court reasoned that the complaint’s allegations that the fraudulent tax return filed in Webb’s name did not sufficiently allege a connection between the data breach and this false return.  Id. at 6-7.  The district court also reasoned the complaint’s other allegations that the potential future misuse of the Plaintiff’s PII was not sufficiently imminent to establish an injury in fact and that actions to safeguard against this risk could not confer standing either.  Id. at 7.  The district court did not reach IWP’s Rule 12(b)(6) arguments because the case was dismissed under Rule 12(b)(1).  Id.  Plaintiffs timely appealed the district court’s decision.  Id.

The First Circuit’s Decision

The First Circuit reversed the judgment of the district court and held that Plaintiffs plausibly alleged a concrete injury in fact.  In regards to Plaintiff Webb, the First Circuit concluded that “the complaint plausibly alleged a concrete injury in fact as to Webb based on the plausible pleading that the data breach resulted in the misuse of her PII by an unauthorized third party (or third parties) to file a fraudulent tax return.”  Id. at *10-11.  The First Circuit rejected the district court’s conclusion that the complaint did not plausibly allege a connection between the data breach and the filing of the false tax return.  Id. at *13.  Instead, the First Circuit opined “[t]here is an obvious temporal connection between the filing of the false tax return and the timing of the data breach.”  Id.

Turning to Plaintiff Charley, the First Circuit held that in light of the plausible allegations of some actual misuse, the complaint plausibly alleged a concrete injury in fact based on the material risk of future misuse of Charley’s PII and a concrete harm caused by the exposure to this risk.  Id. at *15.  Further, the First Circuit opined that the totality of the complaint plausibly alleged an imminent and substantial risk of future misuse of the Plaintiffs’ PII.  Id at *19.

In addition, the First Circuit found the complaint’s allegations satisfied the traceability and redressability standing requirements.  Id. at *21.  The complaint alleged IWP’s actions led to the exposure and actual or potential misuse of Plaintiffs’ PII, making their injuries “fairly traceable to IWP’s conduct.”  Id.  As to redressability, the First Circuit stated “monetary relief would compensate [the plaintiffs] for their injur[ies], rendering the injur[ies] redressable.”  Id. at *22.  The First Circuit thus held that Plaintiffs supported each of their five causes of action for damages with at least one injury in fact caused by the defendant and redressable by a court order.  Id.

Finally, the First Circuit affirmed the district court’s ruling that Plaintiff’s lacked standing to seek injunctive relief.  The sole allegation in the complaint that injunctive relief was necessary was that Plaintiffs’ PII was still maintained by IWP with its inadequate cybersecurity system and policies.  Id.  The First Circuit rejected the idea that an injunction requiring IWP to improve its cybersecurity measures would protect Plaintiffs from future misuse of their PII and instead would only safeguard against a future breach.  Id.  The First Circuit declined to extend injunctive relief where IWP faces, “much the same risk of future cyberhacking as virtually every holder of private data.”  Id. at *24.  For these reasons, the First Circuit affirmed the district court’s holding that Plaintiffs lacked standing to seek injunctive relief.

Implications For Employers

For employers facing data breach class actions, Article III standing defenses are often an optimal avenue to attack the pleadings at the outset, especially in situations involving questionable “injuries” to the named plaintiffs. Businesses that endure data breaches should take note that the First Circuit relied heavily on the temporal connection between the data breach and fraudulent tax filing which constituted a concrete injury.  Accordingly, the lowered pleading threshold that results from this ruling suggests that employers should carefully evaluate the safeguards in place for any personally identifiable information stored, and swiftly respond to any data breaches.

The Class Action Weekly Wire – Episode 20: Securities Fraud Class Action Litigation


Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associate Nelson Stewart with their analysis of key trends and notable rulings in the securities fraud class action landscape. We hope you enjoy the episode.

Episode Transcript

Jerry Maatman: Thank you loyal blog readers for joining us for our Friday weekly podcast, the Class Action Weekly Wire. I’m Jerry Maatman, partner at Duane Morris, and joining me today is Nelson Stewart, an associate in our New York office, to talk about securities fraud class action litigation. Thanks so much Nelson for being on the podcast today.

Nelson Stewart: Great to be here, Jerry – thank you.

Jerry: We wanted to discuss for our clients key trends and developments over the past year in securities fraud class action litigation. Obviously a very serious area of large amount of case law, and so we wanted in this podcast to get your thoughts and ideas about what corporate counsel should be thinking about in terms of key developments in 2022 and what you see in the future in 2023. Nelson, could you share with our listeners an overview of the way in which federal securities laws are structured?

Nelson: Sure – the pillars of federal securities law are the Securities Act of 1933 and the Securities Exchange Act of 1934. These statutes were enacted after the stock market crash of 1929 to regulate the securities markets and promote transparency in those markets for investors. The Securities Act regulates securities for public sale, while the Securities Exchange Act governs the trading of existing securities and securities markets. The Securities Act allows private litigants to pursue claims against corporate issuers for material misrepresentations or omissions made in connection with a securities offering. But a Plaintiff needs to show the shares of the security can be traced back to the actual offering in order to bring a claim under the Securities Act. Because of this limitation, investors alleging claims of securities purchased on an exchange after an offering has occurred tend to look to the implied private right of action under the Securities Exchange Act Section 10(b) and under SEC Rule 10b-5, which prohibit fraudulent schemes or fraudulent misrepresentations or admissions in a broad range of securities transactions.

Jerry: When it comes to class certification under Rule 23 – certainly that’s a rigorous standard to meet a la Walmart Stores v. Dukes – what particular barriers or challenges do plaintiffs face in this particular space when they seek to secure class certification in a securities fraud lawsuit?

Nelson: Proving reliance is one of the prerequisites to class certification under Rule 23(b)(3). The proposed class is often a varied and large group of plaintiffs. This could create individual fact issues that could overwhelm predominant ones and present a very difficult hurdle to class certification. This challenge was eased considerably in the ruling of Basic, et al. v. Levinson, where the U.S. Supreme Court adopted a “fraud on the market” theory of reliance. This theory avoids the need to show individual reliance by employing the presumption that, when a stock trades in an efficient market, investors “rely on the market as an intermediary for setting the stock’s price in light of all publicly available material information; accordingly, when [an investor] buys or sells the stock at the market price, one has, in effect, relied on all publicly available information, regardless of whether the buyer and/or seller was aware of that information personally.”

Jerry: I know the Basic presumption is very unique in this space – does it apply in all securities fraud cases, or are there certain requirements before it may be invoked?

Nelson: The Basic presumption for class certification is invoked by showing that the alleged misrepresentation was publicly known; that it was material; that the stock traded in an efficient market; and that the plaintiffs traded the stock between the time the misrepresentation was made, and the time when the misrepresentation was publicly corrected, or when the truth was revealed. Basic resulted in a significant expansion in securities class actions, and in an attempt to address this expansion and limit frivolous class actions, Congress enacted the Private Securities Litigation Reform Act (“PSLRA”) and the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”).

Jerry: Nelson, I know that class certification rulings in this space tend to find their way into The Wall Street Journal, and I know you’ve analyzed this area in detail – in your opinion, what are some of the key class certification rulings over the past year that corporate counsel should know about?

Nelson: In 2022, a number of defendants successfully argued that plaintiffs failed to satisfy the heightened pleading standards required by the PSLRA, The higher bar of the PSLRA requires that a complaint alleging misstatements or omissions specify each statement alleged to have been misleading, and indicate the reasons why the statement is misleading.

In In Re Carnival Corp. Securities Litigation, plaintiffs alleged that Carnival had made false and misleading statements regarding its COVID-19 polices and the risks posed to its business by the pandemic. The court’s review of the complaint found that Carnival’s statements affirming compliance with regulatory requirements and safety protocols were not actionable and immaterial. The court found that the statements affirming Carnival’s commitment to passenger and crew safety too vague and general to satisfy the particularity requirements of Federal Rule 9(b) and the PSLRA.

Jerry: I know that the Holy Grail in class actions for plaintiffs’ counsel is securing class certification. In terms of a scorecard over the past year, relatively how did plaintiffs and defendants do in dealing with either preemptive motions to dismiss that attacked securities fraud class actions, or an actual litigation of certification motions?

Nelson: In 2022, plaintiffs’ bar was successful in obtaining class certification of at least part of a class in almost all of the cases that went to that stage of litigation. However, companies were successful almost 50% of the time in obtaining favorable rulings on motions to dismiss, motions to strike, and motions for summary judgment – as was the case in In Re Carnival, for example.

Jerry: In terms of All-Star rulings in 2022 for class certification, do you have any favorites in terms of cases you’ve studied and analyzed?

Nelson: Yes – one case in particular involved the Basic presumption we discussed. In St. Clair County Employees’ Retirement System, et al. v. Acadia Healthcare Co., plaintiffs alleged several misrepresentations and omissions concerning the quality of care and staffing at the defendant’s health care facilities. News items and reports by securities analysts later disclosed allegations of understaffing, cost cutting, and patient neglect at those facilities had in fact occurred. In an attempt to overcome the Basic presumption, the defendant argued that the misrepresentations alleged in the complaint were merely generic and not material to the relationship between a misrepresentation relied upon and its impact on the company’s share price. The defendant offered an expert report in support of this argument, but the court determined that the defendant failed to rebut the Basic presumption because the report offered no analysis showing a disconnect between the allegedly generic misstatements and the company’s share price. The court found that in the absence of such analysis, mere contentions that the statements were generic were insufficient to overcome the Basic presumption. As a result, the court granted the plaintiffs’ motion for class certification.

Jerry: I know that in many particular subset of areas class certifications lead to settlements, and in 2022 class action settlements were the highest they had ever been in decades. What did the space look like in terms of securities fraud class action settlements?

Nelson: The plaintiffs’ class action bar successfully converted class certification rulings into class-wide settlement at a brisk pace in 2022. The top ten securities fraud class-wide settlements totaled $3.25 billion in the past year. The top settlement was a class action against Dell Technologies for $1 billion, resolving claims that the defendants breached their fiduciary duties to former shareholders of a particular kind of Dell stock. There was also a large settlement of over $800 million from Twitter in a class action, where stockholders alleged that Twitter artificially inflated its stock price by misleading investors about user engagement.

Jerry: Those are hefty numbers and a lot of coin – I’m sure in 2023 the plaintiffs’ bar will be loaded for bear again. Well thank you for your analysis Nelson, and for your overview of the developments over the past year in securities throughout class action litigation, and thank you to our listeners for joining our Friday weekly podcast. Have a great day!

In A Stark Bench-Slap, The Eighth Circuit Affirms An Attorneys’ Fee Award Of $500 For FLSA Collective Action Settlement

By Gerald L. Maatman, Jr., Emilee N. Crowther, and George J. Schaller

Duane Morris Takeaways: In Vines et al. v. Welspun Pipes, Inc., et al.., No. 21-3537, 2023 U.S. App. LEXIS 16425 (8th Cir. June 29, 2023), the Eighth Circuit affirmed  a district court’s ruling in approving a settlement of an underlying class and collective action that reduced an attorneys’ fee award to $500. The Eight Circuit determined that the district court did not abuse its discretion when it reduced the fee award on the basis that plaintiffs were not a “prevailing party” on appeal.  

For employers facing wage & claims under the Fair Labor Standards Act and state law related wage-claims, this decision is instructive in terms of what reviewing courts will consider for attorney’s fee awards, particularly where  a party’s conduct may be considered unprofessional and/or abusive.

Case Background

In the underlying case, Vines I, Anthony Vines and Dominique Lewis (collectively “Plaintiffs”) brought a class and collective action against Defendants, Welspun Pipes Inc., Welspun Tubular LLC, and Welspun USA, Inc. (collectively “Welspun” or “Defendants”), under the Fair Labor Standards Act (“FLSA”) and the Arkansas Minimum Wage Act (AMWA).  Id. at 1-2.  Ultimately, the district court approved a settlement of the case. Id. at 2.

After approval of the settlement, Plaintiffs’ counsel moved for an award of attorneys’ fees and costs. Id. Plaintiffs sought $96,000 in attorneys’ fees following the $270,000 settlement deal. The district court rejected the request. It found significant that Plaintiffs’ law firm assigned 17 lawyers, plus staffers, to watch the district court deemed a “run-of-the-mill” FLSA case, saying such cases were not intended to be “conduits for funneling unearned fees into lawyers’ pockets.” Id. As a result, the district court partially granted the motion, awarding $1.00 in fees to the plaintiffs because of the billing practices of their law firm, Sanford Law Firm, PLLC (“SLF”).  Id.  Alternatively, the district court noted that it would award $25,000 in fees if $1.00 was improper. Id.  Plaintiffs’ appealed the district court’s decision.

On appeal, the Eighth Circuit “vacated the award of attorneys’ fees,” “[b]ecause the record contained no lodestar calculation.” Id.  The Eighth Circuit remanded the case for the “lodestar calculation” and expressly noted the district court had discretion “to consider. . . the party’s unprofessional conduct in the case,” for purposes of reducing any award of attorneys’ fee.  Id. at 2.

On remand, the district court calculated a lodestar of $14,056.50.  Id.  However, relative to the award of attorneys’ fees,  the district reduced the award to $500 “based on the SLF’s egregious conduct.”  Id.  The district court opined that the reduction was proper for “a multitude of reasons” including “SLF’s rejection of a ‘substantial settlement offer,’ ‘an unearned fee demand,’ and ‘deterrence for [SLF’s] unprofessional conduct.’”  Id.

In response, Plaintiffs’ moved to amend the judgment and for leave to file a supplemental petition for costs and fees. Id.  The district court denied Plaintiffs motion on the grounds that “[Plaintiffs] were not a prevailing party on appeal ‘because there [had] been no definitive ruling on the fees award and all [p]laintiffs’ other claims for relief were unequivocally rejected by the Eighth Circuit.” Id. at 3.

Plaintiffs appealed the attorneys’ fees award a second time. Id.  In addition, the Plaintiffs’ counsel argued the district court’s decision was erroneous for: (i) “award[ing] a fee amount … not based on the lodestar calculation”; (ii) “us[ing] the FLSA’s statutory fee award as a vehicle for sanctions”; (iii) “fail[ing] to provide [them] with notice and an opportunity to respond prior to entering sanctions”; and (iv) “f[inding] that [they] were not prevailing parties and refus[ing] to award any fees related to the appeal.”  Id.

The Eighth Circuit’s Decision

The Eighth Circuit affirmed the judgment of the district court in the second appeal. It found no abuse of discretion in the district court’s award of $500.00 in attorneys’ fees.  Id.  The Eighth Circuit held that the district court complied with its directive on calculating the award of attorneys’ fees and lodestar reduction by “provid[ing] ample justification” based on “SLF’s unprofessional conduct.”  Id.  The Eighth Circuit reasoned that “[t]he trial court knows the case best. It knows what the lawyers have done, and how well they have done it. It knows what these efforts are worth.” Id.

The Eighth Circuit also rejected Plaintiffs’ argument that the district court erred in determining Plaintiffs “[were] not prevailing parties.”  Id.  The Eighth Circuit acknowledged the FLSA “allow[s] a reasonable attorney’s fee to be paid by the defendant, and costs of the action,” in addition to any judgment to the plaintiff.  Id. at 4.  But, “[i]n general, if a plaintiff prevails in the district court, but then seeks and fails to obtain greater relief on appeal, he or she ‘will be hard pressed to demonstrate an entitlement to . . . attorney’s fees on appeal.’”  Id.

The Eighth Circuit held that Plaintiffs “did not obtain the ‘greater relief on appeal’ that they sought in Vines I and therefore were not prevailing parties.  It rejected Plaintiffs’ argument “that the district court erred in denying the March 2020 motion for approval of settlement.”  Id.  Second, it also rejected Plaintiffs’ request to “reassign the case to a new district judge on remand.”  Id.

For these reason, the Eighth Circuit affirmed the judgment of the district court.

Implications For Employers

The ruling of the Eighth Circuit is well worth a read by employers who are often confronted with settlement demands where counsel for employees seek hefty awards of attorneys’ fees far in excess of the value of their clients’ unpaid overtime.

Employers that are confronted with appeals of attorney’s fee awards, should take note that the Eighth Circuit in Vines relied heavily on the district court’s recitations of the procedural facts for its decision.  Further, from a practical standpoint, employers should carefully evaluate attorney’s actions for misconduct during wage & hour settlements when an attorney’s fee award is requested.

California District Court Gives Green Light To BIPA Claims Brought Against YouTube

By Gerald L. Maatman, Jr. and Tyler Z. Zmick

Duane Morris Takeaways:  In Colombo v. YouTube, LLC, et al., No. 22-CV-6987, 2023 WL 4240226 (N.D. Cal. June 28, 2023), the U.S. District Court for the Northern District of California issued a decision embracing a broad interpretation of the data types that are within the scope of the Illinois Biometric Information Privacy Act (“BIPA”).  The decision puts businesses on notice that the statute may apply to the collection or possession of any “scan of face geometry,” regardless of whether the scan can be used to identify a specific individual – – in other words, a “biometric identifier” under the BIPA need not be capable of “identifying” a person.  Colombo v. YouTube, LLC is required reading for corporate counsel facing privacy class action litigation.

Background

Plaintiff’s BIPA claims were premised on two YouTube video editing tools that allegedly resulted in the collection of his “biometric identifiers” and “biometric information” (collectively, “biometric data”) – YouTube’s (1) “Face Blur” tool and (2) “Thumbnail Generator” tool.  Id. at 2-3. According to Plaintiff, the “Face Blur” tool enables a user to select faces appearing in videos uploaded by the user that he or she may wish to “blur,” resulting in those faces appearing blurry and unrecognizable to any viewer of the videos.  Plaintiff claimed that when someone uses the tool, YouTube scans the uploaded video “to detect all unique faces” and, in doing so, “captures and stores scans of face geometry from all detected faces, creating a unique ‘faceId’ for each.”  Id. at 2 (citation omitted).

Regarding YouTube’s “Thumbnail Generator” feature, Plaintiff described the tool as auto-generating photographic thumbnails (i.e., screenshots from an uploaded video) by scanning videos for faces at the time they are uploaded and using the “face data to auto-generate thumbnails that contain faces.”  Id. (citation omitted).

Based on his alleged use of these two YouTube tools, Plaintiff alleged that YouTube violated Sections 15(a) and 15(b) of the BIPA by (i) failing to develop and comply with a written policy made available to the public establishing a retention policy and guidelines for destroying biometric data, and (ii) collecting his biometric data without providing him with the requisite notice and obtaining his written consent.

YouTube moved to dismiss on three grounds, arguing that: (1) Plaintiff failed to allege that data collected by YouTube qualifies as “biometric data” under the BIPA because YouTube did not (and could not) use the data to identify Plaintiff or others appearing in uploaded videos; (2) Plaintiff’s claims violated Illinois’s extraterritoriality doctrine and the dormant Commerce Clause; and (3) Plaintiff failed to allege that he was “aggrieved” for purposes of his Section 15(a) claim.

The Court’s Decision

The Court denied YouTube’s motion to dismiss on all three grounds.

“Biometric Identifiers” And “Biometric Information”

YouTube first argued that Plaintiff failed to allege that data collected through the Face Blur and Thumbnail Generator tools qualify as “biometric data” under the BIPA because Plaintiff did not plausibly allege that YouTube could use the data to affirmatively identify Plaintiff or other individuals.  See id. at 4 (“In YouTube’s view, biometric identifiers must identify a person and biometric information must actually be used to identify a person.”).

The Court rejected YouTube’s argument, stating that “[t]he “point is not well taken.”  Id.  The Court noted the statute’s definition of “biometric identifier” as “a retina or iris scan, fingerprint, voiceprint, or scan of hand or face geometry,” see 740 ILCS 14/10 – a definition that does not explicitly require that the listed data points be capable of identifying a particular person.  While the Court acknowledged that the term “identifier” may suggest that the data must be used to identify a person, the Court also opined that “‘[w]hen a statute includes an explicit definition, we must follow that definition,’ even if it varies from a term’s ordinary meaning.”  Id. at 4 (citation omitted); see also id. at 5 (“[T]he Illinois legislature was perfectly free to define ‘biometric identifier’ in a specific manner that is not tethered to the plain meaning of the word ‘identifier’ alone.”).

Extraterritoriality & Dormant Commerce Clause

The Court also rejected YouTube’s arguments that Plaintiff failed to allege that YouTube’s relevant conduct occurred “primarily and substantially” in Illinois, and Plaintiff’s interpretation of the BIPA would run afoul of the dormant Commerce Clause.

The Court held that Plaintiff sufficiently alleged that YouTube’s conduct occurred “primarily and substantially” in Illinois, thereby satisfying the extraterritoriality doctrine.  Id. at 5. Responding to YouTube’s argument that the company’s headquarters and data servers are located outside of Illinois, the Court stated that those facts are “not dispositive” and that “[m]aking the geographic coordinates of a server the most important circumstance in fixing the location of an Internet company’s conduct would . . . effectively gut the ability of states without server sites to apply their consumer protection laws to residents for online activity that occurred substantially within their borders.”  Id. at 6 (citation omitted).

Using the same reasoning, the Court concluded that “YouTube’s dormant Commerce Clause theory fares no better” because YouTube’s allegedly BIPA-violating conduct “cannot be understood to have occurred wholly outside Illinois,” id. at 7 (citation omitted) – i.e., Plaintiff’s claims were based on the application of an Illinois law to Illinois-based YouTube users.

Whether Plaintiff Is “Aggrieved” Under Section 15(a)

Finally, the Court rejected YouTube’s argument that Plaintiff failed to allege that he was “aggrieved” under Section 15(a), which sets forth two requirements for entities in possession of biometric data: (i) to develop a publicly available BIPA-compliant retention policy; and (ii) to comply with that policy.  YouTube argued that Plaintiff failed to allege that he was aggrieved under Section 15(a) because he did not claim that YouTube failed to comply with an existing retention policy as to his biometric data (e.g., that three years had passed since his last interaction with YouTube, yet YouTube had failed to destroy his biometric data).

The Court observed, however, that Plaintiff alleged that YouTube failed to develop and “therefore failed to comply with any BIPA-compliant policy,” which “is enough to move forward . . . [a]t the pleadings stage.”  Id. at 8 (emphasis added) (citation omitted).

Implications For Corporate Counsel

Colombo can be added to the list of recent plaintiff-friendly BIPA decisions, as it endorses an expansive view of the types of data that constitute “biometric data” under the statute.  Indeed, the Colombo ruling suggests that any data that can be characterized as a “scan of face geometry” – regardless of whether the scan can be linked to a specific person to identify him or her – qualifies as a “biometric identifier” within the BIPA’s scope.  Put another way, technology capable of only detecting a category of objects or characteristics in a photo or video (e.g., software that identifies the location of a human face in a photo – as opposed to an arm or leg – without being able to link that face to a specific person) may involve data subject to regulation under the BIPA.

U.S. Supreme Court Ends Affirmative Action in University Admissions, Likely Leading To Legal Challenges to Diversity Efforts Within Corporations

By Gerald L. Maatman, Jr. and Rebecca S. Bjork

Duane Morris Takeaways: On June 29, 2023, the U.S. Supreme Court ruled that colleges and universities may not consider the race of applicants when making admissions decisions.  In Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, No. 20-1199 (U.S. June 29, 2023), Chief Justice Roberts wrote the majority opinion in a 6-3 ruling joined by Justices Thomas, Alito, Gorsuch, Kavanaugh and Barrett.  The Supreme Court held that affirmative action programs at Harvard and the University of North Carolina-Chapel Hill violated the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution.  The decision, which is 237 pages in length, including concurring and dissenting opinions, opens the door for legal challenges to be brought to employers’ diversity, equity and inclusion efforts because the Supreme Court’s reasoning – that race-conscious admissions policies may constitute unconstitutional differential treatment of individuals based on race – arguably applies to hiring and promotion decisions made within business organizations. 

Case Background

The lawsuit that led to the Harvard decision was filed in the U.S. District Court for the District of Massachusetts by Students for Fair Admissions, Inc. (SFAA), a legal organization created to bring federal court challenges to affirmative action in college and university admissions.  In 2014, SFAA sued both Harvard and UNC in separate lawsuits, arguing that their race-conscious admissions policies violated Title VII of the Civil Rights Act and the Fourteenth Amendment’s Equal Protection Clause.  Id. at 6.  The First Circuit had affirmed a trial judgment in Harvard’s favor, while the Fourth Circuit was considering an appeal of the UNC case when the Supreme Court granted certiorari in the Harvard case and brought the UNC case into its writ to be decided alongside it.

The Supreme Court’s Decision

After determining that SFAA had standing to bring its lawsuits, the majority turned to analyzing the merits.  It focused on the Fourteenth Amendment in light of prior decisions relating to education, beginning with the holding in Brown v. Board of Education that “racial discrimination in public education is unconstitutional.”  Id. at 13.  After reviewing decades of case law following in the footsteps of Brown, the majority concluded that “[e]liminating racial discrimination means eliminating all of it.”  Id. at 15.  The majority discussed the application of the strict scrutiny test that courts apply to determine whether an exception can be made to the constitutional requirement of equal protection and analyzed how prior decisions regarding affirmative action considered the facts at hand in applying that test.  Citing Regents of the University of California v. Bakke, 438 U.S. 265 (1978), Grutter v. Bollinger, 539 U.S. 306 (2003), and Fisher v. University of Texas at Austin, 570 U.S. 297 (2013) – the latter of which was also brought by the founder of SFAA – the majority examined these prior rulings in detail.  The majority asserted that in Fisher, the Supreme Court made it clear that while colleges and universities could consider race in admissions decisions, the process must have “a termination point,” “have reasonable durational limits,” “must have ‘sunset provisions’” and “must have a logical end point.”  Id. at 21.

The majority concluded that the end point has now been reached, deciding that both Harvard’s and UNC’s admissions policies that took race into consideration were unconstitutional because the operations of those programs do not create outcomes that are “sufficiently measurable to permit judicial [review].”  Id. at 22.  For example, Harvard’s stated purposes for using race-conscious admissions processes included “training future leaders in the public and private sectors,” “preparing graduates to adapt to an increasingly pluralistic society,” “better educating its students through diversity,” and “producing new knowledge stemming from diverse outlooks.”  Id. at 23.  The majority held that those objectives “are not sufficiently coherent for purposes of strict scrutiny.”  Id.

Independently, the majority held that the programs violated equal protection principles based on statistics showing that Harvard’s consideration of race in admissions led to an 11/1% decline in the number of Asian-Americans admitted to the prestigious college.  Id. at 27.  This led the majority to conclude that an individual’s race is, by effect, a negative factor in the admissions process, which violates the rules set forth in the earlier affirmative action cases in higher education discussed in the ruling.  Id.

Finally, the majority expressed a caveat to its ruling forbidding the use of race-conscious processes in admissions.  It wrote that “nothing in this opinion should be construed as prohibiting universities from considering an applicant’s discussion of how race affected his or her life, be it through discrimination, inspiration, or otherwise.”  Id. at 39.  Time will tell whether this creates a loophole in the majority’s decision, but it clearly will encourage further litigation in the future in this area of the law, as college admissions officials grapple with how to consider and weigh the impact of such admissions essays submitted by prospective students.

As expected, the dissenting Justices Sotomayor and Jackson wrote impassioned dissents, and Justice Sotomayor read hers from the bench, in terms of signaling its importance.  They maintained that the Fourteenth Amendment itself is not race-neutral; it was drafted at the end of the Civil War precisely to provide race-based relief to former enslaved persons seeking to enter civic and commercial society.  For these reasons, they contended that, to hold that its application requires a form of color-blindness, is in conflict with the amendment itself.  And they expressed concern that students who are members of historically disadvantaged racial groups will find it increasingly difficult to get ahead of their non-minority peers as a result of the majority’s ruling.

Implications For Employers

While one would not normally think that a decision relating to university admissions processes would implicate how employers hire and evaluate employees, in this case it does.  Media outlets have already reported that attorneys are preparing challenges to employers’ diversity, equity and inclusion programs, applying the same Fourteenth Amendment analysis outlined in the Supreme Court’s decision in Harvard.  As such, legal department leaders in corporate America should pay attention and be aware of how this decision poses litigation risks to their businesses.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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