Category: Procedural Issues

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

Duane Morris Takeaways: On June 5, 2025, the U.S. Supreme Court issued a decision in Laboratory Corporation of America Holdings d/b/a Labcorp v. Davis, No. 24-304 (U.S. June 5, 2025), that dismissed the writ of certiorari as improvidently granted, an extremely rare move colloquially known as a “DIG.”  Even more interesting, from the vantage point of issues that are the subject of this blog – namely, defense of class action litigation – Justice Kavanaugh wrote in dissent, stating that he would have decided the case and ruled that federal courts may not certify damages classes under Rule 23 that include both injured and uninjured class members.  He reasoned that allowing such classes would not satisfy the Rule 23(b)(3) requirement that common issues predominate over individual issues.  This unique decision, while it does not carry precedential weight, is instructive because the dissenting opinion provides a new roadmap for defendants facing class claims involving uninjured class members to challenge class certification, potentially keeping the door open for future review by the U.S. Supreme Court. 

Background

The U.S. Supreme Court’s majority per curiam opinion dismissing the writ as improvidently granted is, as is typical, a perfunctory statement that says: “The writ of certiorari is dismissed as improvidently granted.”  Slip op. at 1.  The dissenting opinion authored by Justice Kavanaugh provides the background of the case, at least as it informs the issues he addresses in his dissent.  His dissent starts by explaining that the majority decided the case was moot, but that he found that issue to be “insubstantial.”  Id. at 1.  He stated that he would have decided the case. 

He provided the following background information — a federal district court in California certified a Rule 23 class of blind and visually impaired individuals who sued Labcorp, a company providing diagnostic medical testing services to consumers.  The plaintiffs who brought the class action alleged they were “denied full and equal enjoyment of” goods, services, and accommodations required under the Americans with Disabilities Act by “LabCorp’s [sic] failure to make its e-check-in kiosks accessible to legally blind individuals.”  Id. at 2.  Later, the district court issued an order refining the class definition to include “all legally blind individuals who . . ., due to their disability” were unable to use Labcorp’s e-check in kiosks in California.  Id. at 3. 

Labcorp appealed the class certification decision to the Ninth Circuit under Rule 23(f).  Id. The Ninth Circuit affirmed the district court and held that even if more than a de minimis number of class members are uninjured, Rule 23 allows district courts to certify such classes.  Id. After en banc review was denied by the Ninth Circuit, the U. S. Supreme Court granted certiorari to decide the question whether Rule 23 authorizes certification of damages classes including uninjured class members.

Justice Kavanaugh’s Dissent From The U.S. Supreme Court’s DIG

In the substance of his dissenting opinion, Justice Kavanaugh opined that the predominance requirement of Rule 23 (b)(3) precludes district courts from certifying damages classes that include individuals who have suffered no legally cognizable injury.  After discussing his disagreement with the majority’s analysis of the mootness issue (relating to whether Labcorp filed its Rule 23(f) petition against the correct class certification order), he analyzed the merits of the predominance inquiry.  Id. at 4-5. 

He reasoned that the Ninth Circuit decision ignores several U.S. Supreme Court decisions in the class actions area that, in his view, rule out including non-injury class members in damages classes (among them Comcast v. Behrend and Wal-Mart v. Dukes.)  He also pointed to the Advisory Committee notes history of Rule 23(f) to conclude that it was established to prevent efforts to “coerce businesses into costly settlements” that include an unknown number of persons to have suffered no loss at all.  Id. at 6.  He also opined that such settlements raise the cost of doing business such that they create public policy effects such as higher costs of living that ultimately harm consumers, retirees and workers.  Id.

Implications Of The Decision

The U.S. Supreme Court’s DIG order, while exceedingly rare, is actually not the big news embedded in this decision.  The dissent by Justice Kavanaugh to the DIG order provides an explanation of how future litigants facing class actions that include individuals who have no legal injury conferring standing can present the issue in arguing Rule 23(b)(3) predominance.  Companies facing the litigation pressures that class actions often produce should follow this blog for future developments in what we predict will be a significant area of litigation in the coming years. 

By Gerald L. Maatman, Jr., Shannon Noelle, and Anna Sheridan

Duane Morris Takeaways:  In an order issued on May 13, 2025, Judge Joshua Wolson of the U.S. District Court for the Eastern District of Pennsylvania ruled that a case removed to federal court on the basis of diversity jurisdiction had to be remanded back to state court given that the amount-in-controversy (AIC) alleged was based on an attorneys’ fee award that exceeded the plaintiff’s damages award by “at least seven times.”

Case Background

On January 9, 2025, Plaintiff Frank Wise sued his former employer Kimberly-Clark, a manufacturer of paper-based consumer products, in the Philadelphia Court of Common Pleas on behalf of himself and a putative class, accusing his former employer of violating the Pennsylvania Minimum Wage Act (“PMWA”) by failing to pay overtime for the time spent walking to and from job assignments in the Defendant’s manufacturing facility.  As part of its remedial regime, the PMWA permits a prevailing party to recover “reasonable” attorneys’ fees.  Plaintiff Wise estimated that his damages totaled $9,350.30, but on his cover sheet he indicated that the amount in controversy totaled “[m]ore than $50,000.00” for the amalgamated claims of the class.  (ECF No. 1-3, p. 2). 

On February 26, 2025, Defendant Kimberly-Clark removed the action to federal court, asserting that the amount in controversy was over $75,000 because Plaintiff Wise “may try to recover at least $78,375.00 in attorney’s fees.”  (ECF No. 1 ¶¶ 24, 29). Plaintiff Wise moved to remand by including with that motion a declaration from his attorneys that if the lawsuit proceeded on an individual, rather than a class wide basis, the Plaintiff and his attorneys would waive the right to recover attorneys’ fees that would cause the amount in controversy to cross $75,000.

The Court’s Order

Judge Wolson found that Defendant Kimberly-Clark did not carry its burden to demonstrate that the amount in controversy exceeded $75,000, which the Defendant primarily based on its attorneys’ fees estimate.  Although attorneys’ fees can be factored into the amount in controversy threshold, the attorneys’ fees sought must be reasonable.  To pinpoint the legal standard under Pennsylvania law for determining when an award of attorneys’ fees is reasonable, Judge Wolson surveyed case law interpreting statutes similar to the PMWA, such as the Pennsylvania Unfair Trade Practices and Consumer Protection Law, where Pennsylvania courts determined that the “term reasonable” incorporates the concept of proportionality between the damages award and attorneys’ fees award.  Though Pennsylvania law contains no “hard-and-fast rule for the acceptable ratio,” courts consider “the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite properly to conduct the case, the customary charges of the members of the bar for similar services, the amount involved in the controversy and benefits resulting to the clients from the services, and the contingency or certainty of the compensation.”  (internal citations and quotations omitted).  Applying this framework, Judge Wolson found that a 7:1 ratio for attorneys’ fees as compared to damages was unreasonable and could not be used to reach the jurisdictional threshold. 

Judge Wolson further opined that this conclusion also was consistent with protecting the judicial economy of federal courts as litigants and attorneys should not be able to use exorbitant attorneys’ fees estimates to circumvent the amount in controversy requirement to invoke diversity jurisdiction.  In the case at hand, the parties agreed for purposes of the motion that Plaintiff Wise could recover $9,350.30 in monetary damages and that the legal issues at hand involved straight-forward unpaid overtime claims.  Notably, Judge Wolson also found the Plaintiff’s attorneys’ declaration, waiving the right to collect attorneys’ fees, to be unavailing as it arguably amended the complaint.

Implications For Employers

The Court’s holding in Wise emphasizes the importance of providing concrete evidence regarding damages sought and reasonable attorneys’ fee estimates when seeking to remove based on diversity jurisdiction.  Ultimately, the damages and attorneys’ fees alleged in the complaint take precedence, but proportionality must be considered even in the context of fee shifting statutes.  If a party’s jurisdictional math does not add up, they may be sent back to where the matter started:  state court.  

By Gerald L. Maatman, Jr., Jennifer A. Riley, Shannon Noelle, and Anna Sheridan

Duane Morris Takeaways: On May 8, 2025, the Beard Group sponsored the Class Action Money & Ethics Conference in New York City. During the conference, over 200 attendees discussed key issues impacting class action litigation in 2025. We were privileged to chair the Conference and present the keynote address on class action litigation trends for the past year and what 2025 has in store for Corporate America. The discussion at the program underscores the cutting-edge issues facing companies in this area of law.

Key Trends For The Past Year

In our keynote address, we discussed the top ten developments in the class action litigation space. The leading trends center on the new era of heightened risks and elevated exposures that pivot on record-breaking settlement numbers, the high conversion numbers for class certification motions into certified classes, and the rise in privacy and data breach class actions.

On the settlement front, 2022 saw $66 billion in total proceeds when measured by the top ten settlements in all areas of law. In 2023, that figure totaled $51 billion, for a combined total of $117 billion over the past 24 months. And in 2024, those numbers came in at $42 billion, which pushed the settlement numbers to $159 billion for the past 36 months.

In terms of class certification motions, the Plaintiffs bar successfully secured certification in 63% of cases over the past year. Those figures ranged from nearly 83% in WARN lawsuits to 37% in RICO cases. That said, the plaintiffs’ bar has proven its track record to convert class action lawsuit filings in to certified classes at a high rate.

In the privacy and data breach space, such claims became ubiquitous in 2024, with a virtual explosion in those types of lawsuits. While certification rates were quite low in data breach situations, the plaintiffs’ bar secured certification in privacy class actions at a higher rate.

We also discussed how class actions over environmental. social, and governance issues went mainstream in the past year. We predicted that ESG class actions will continue to increase, especially as the plaintiffs’ bar refines their theories of recovery and begin to monetize their claims. In particular, securities fraud class actions over DEI commitments are increasing as a result of the U.S. Supreme Court’s recent decision in Students For Fair Admissions, Inc., et al. v. President And Fellows Of Harvard College, 600 U.S. 181 (2023). Both plaintiffs’ lawyers and defense counsel anticipate more litigation in this space.

Data Breach Panel

An interesting panel discussion – consisting primarily of plaintiffs’ lawyers – ensued after the keynote address on wiretapping class claims under the Video Privacy Protection Act and data privacy class action litigation. They reflected on the patchwork quilt of rulings in these areas over the past year and the low certification rates due to problems in surmounting standing issues based on lack of injury-in-fact showings.

The panelists predicted a subtle shift in privacy and data breach lawsuits to effectuate a “work around” to these impediments. Multiple plaintiffs’ counsel predicted more reliance on state law claims and litigation of class-wide claims in state court.

Panel On Class Notice Strategies

The next panel focused on trends for class notice in 2025 and how artificial intelligence is now mainstream in terms of its use to facilitate the notice send to class members. The panelists expressed how these practices are quite innovative and rapidly evolving. Notice through social media and/or texts or email also is considerable cheaper than U.S. Mail, which is driving down settlement administration costs.

The challenge, however, is to prevent fraudulent claims from individuals seeking a share of the settlement pot. As to take rates, social media advertising is driving the rates upward, but the rates in data breach cases remain low at 1% to 5% (as compared to other types of settlements).- Class member demographics also impact the take rate, as older individuals are apt to view social media notice as “junk mail” or a scam. Conversely, staying ahead of fraudsters has created an imperative for settlement administrators (e.g., where settlement shares are claimed by an IP address of a bot).

Panel On Fraud In The Class Action Process

Another panel discussed the rise of fraudsters in the class action space. Some involve “deep fakes” of persons who seek to assert false claims as named plaintiffs or class members. Others involve cyber-criminals who infiltrate the settlement administration process through artificial intelligence software and seek class settlement shares on a false basis.

Judicial responses have run the gamut from shutting down the settlement administration process and rebooting it with enhanced security measures to referrals to law enforcement personnel to combat fraud. Panelists predicted that judges are apt to ratchet up the scrutiny of final settlement approval of class actions, and possibly promote direct mail notice over digital communications.

Implications For Companies

Class action litigation is a fact of life for corporations operating in the United States. Today’s conference underscored that change is inevitable, and class actions litigation is no exception.

By Justin Donoho and Gerald L. Maatman, Jr.

Duane Morris Takeaways:  On March 24, 2025, in  Popa v. Harriet Carter Gifts, Inc., 2025 WL 896938 (W.D. Pa. Mar. 24, 2025), Judge William S. Stickman IV of the U.S. District Court for the Western District of Pennsylvania granted summary judgment for a retailer on a claim that the retailer’s use of website advertising technology violated the Pennsylvania Wiretapping and Electronic Surveillance Control Act (“WESCA”).  The ruling is significant as it shows that in the hundreds of adtech class actions across the nation seeking millions or billions of dollars in statutory damages under various federal and state wiretap acts, implied consent may be found as a matter of law, thus disposing of the wiretap claim, where the defendant has posted a clearly labeled privacy statement at the bottom of the relevant webpage that discloses the use of adtech.

Background

This case is one of a legion of class actions that plaintiffs have filed nationwide alleging that Meta Pixel, Google Analytics, and other similar software embedded in defendants’ websites secretly captured plaintiffs’ web browsing data and sent it to Meta, Google, and other online advertising agencies. 

This software, often called website advertising technologies or “adtech,” is a common feature on millions of corporate, governmental, and other websites in operation today.  In adtech class actions, the key issue is often a claim brought under a federal or state wiretap act, a consumer fraud act, or the Video Privacy Protection Act, because plaintiffs often seek millions (and sometimes even billions) of dollars, even from midsize companies, on the theory that hundreds of thousands of website visitors, times $10,000 per claimant in statutory damages under the Federal Wiretap Act, for example, equals a huge amount of damages.  Plaintiffs have filed the bulk of these types of lawsuits to date against healthcare providers, but they have filed suits against companies that span nearly every industry including retailers, consumer products, and universities.  Several of these cases have resulted in multimillion-dollar settlements, several have been dismissed, and the vast majority remain undecided. 

In Popa, the plaintiff brought suit against a retailer.  According to the plaintiff, the retailer installed adtech called NaviStone OneTag on its public-facing website, thereby transmitting to Navistone, allegedly without the plaintiff’s consent, data about her visit to the retailer’s website where she added a set of pet stairs to her shopping cart.   See id., 52 F.4th 121, 124-25 (3d Cir. 2022) (referenced in id., 2025 WL 896938).  Based on these allegations, the plaintiff claimed that the retailer aided Navistone to intercept her communications in violation of the WESCA.  Id., 2025 WL 896938, at *1. 

The retailer moved for summary judgment, arguing that the plaintiff consented because of the nature of the internet or, alternatively, due to the retailer’s “Privacy Statement” linked at the bottom of the retailer’s webpage in a color contrasting with the website’s background, as is common on many websites, and which disclosed the retailer’s use of adtech.  Id. at *2.

The Court’s Decision

The Court agreed with the retailer and held that the plaintiff impliedly consented to the retailer’s privacy policy, thereby defeating the plaintiffs’ WESCA claim.

Central to the Court’s holding was the WESCA’s statutory exception rendering it inapplicable “where all parties to the communication have given prior consent to such interception.”  Id. at *5 (quoting 18 Pa. C.S. § 5704(4)).   As the Court explained, “actual knowledge is not required under the mutual consent provisions of WESCA” and “‘prior consent’ can be demonstrated when the person being recorded knew or should have known, that the conversation was being recorded. This standard is one of a reasonable person, and not proof of the subjective knowledge of the person being recorded.”  Id. at **5-6.  In short, the Court reasoned that “the WESCA mutual consent exception focuses on a reasonable person standard.”  Id. at *6.

To determine the reasonable person standard under the WESCA, the Court rejected the retailer’s first argument that any reasonable person using the internet impliedly consents to the use of adtech because of the nature of the internet.  As the Court found, “the nature of the internet does not confer blanket implied consent to interception under WESCA.”  Id. at *7.  However, as the Court further found that “a reasonably prudent person has a lower expectation of privacy on the internet than on, for example, a telephone, which lacks the entire system of trackers, cookies, and algorithms commonly, if not ubiquitously, implicated in the use of a website.”  Id. at *7.

Having found that WESCA’s reasonable person standard involves a lower expectation of privacy on the internet than on the telephone, the Court applied this standard to the relevant facts of the case.  In doing so, the Court found that although the plaintiff did not actually read the Privacy Statement and therefore did not actually consent, if she were a reasonable person using the internet as the Court deemed her to be, then she had constructive knowledge as a matter of law due to a “browsewrap” agreement and therefore impliedly consented.  As the Court explained, “Contracts formed on the Internet [include] ‘browsewrap’ agreements, where a website’s terms and conditions of use are generally posted on the website via a hyperlink at the bottom of the screen.  Unlike a clickwrap agreement, a browsewrap agreement does not require the user to manifest assent to the terms and conditions expressly a party instead gives his assent simply by using the website.”  Id. at *9.

In conclusion, the Court found a browsewrap agreement as a matter of law and ordered entry of a judgment in the retailer’s favor based on the following facts: (1) the privacy statement “was specifically labeled ‘Privacy Statement.’ [The plaintiff], or any other user could have easily seen the link and understood exactly what it contained”; and (2) the retailer’s placement of a link to the privacy statement on the bottom of the relevant webpage was “in line with common usage”; and (3) “The hyperlink to the Privacy Statement was reasonably conspicuous. It was displayed in a white contrasting font against a blue background on the bottom of every page of the website.”  Id. at *11. 

In sum, the Court found that “these factors compel a finding that a reasonable person in [the plaintiff]’s position had constructive notice of the terms of the Privacy Statement as a matter of law.”  Id.

Implications For Companies

Popa provides powerful precedent for any company opposing adtech class action claims brought not only under the WESCA but also under any state or federal wiretap act, provided the company has a privacy policy sufficiently disclosing the use of adtech via a clearly labeled link on the bottom of the applicable webpage.  Consider, for example, the numerous adtech class actions featuring a claim under the Federal Wiretap Act and seeking millions or billions of dollars in statutory damages.  Although some courts have dismissed these claims on other grounds such as the lack of an interception or lack of criminal or tortious purpose (as discussed in our previous blog entry about a recent win for adtech defendants, here), other courts have refused to dismiss adtech claims brought under the Federal Wiretap Act, allowing them to proceed to costly merits, class certification, and expert discovery. 

Popa provides an alternative path to victory in these cases, where applicable, which is to show that the plaintiff implied consented to the adtech via browsewrap.

By Tiffany E. Alberty and Gerald L. Maatman, Jr.

Duane Morris Takeaways: On February 24, 2025, in CSU Board of Governors v. Alderman, Case No. 23-SC-565, 2025 CO 9 (Colo. Feb. 24, 2025), the Colorado Supreme Court reversed the Court of Appeals in finding that an unjust enrichment class claim over COVID-19 tuition reimbursement may proceed even though it contained the same subject matter in which a breach of contract claim was dismissed. As a result, a plaintiff cannot properly state a claim for unjust enrichment if an enforceable contract covers the same subject matter as those claims.

Case Background

In April 2020, Renee Alderman (“Alderman”) filed a putative class action against Colorado State University (“CSU”) in state court, accusing the university of taking tuition and student fees and failing to refund the tuition and fees, when the university was closed for six-weeks due to the pandemic in Spring of 2020, and thus breaching their contract or in the alternative, enriching itself with student money. 2025 CO 9, at 3.

Alderman argued that CSU had a contractual obligation to provide “live, in person classroom instruction in a physical classroom” and “access to on-campus athletic events, on-campus computers and technology, and other in-person events” in exchange for student payments inclusive of tuition and fees. Id. at 6. However, CSU noted that it offered “fully online distance-learning programs” which were priced differently than in-person classes in Fort Collins.  As such, CSU moved to dismiss Alderman’s complaint under 12(b)(5) – failure to state a claim, citing it had authority to temporarily cease operations under C.R.S. § 23-30-111, which covers exigent circumstances such as in the event of “the prevalence of fatal diseases of other unforeseen calamity.” Id. at 7.

Ultimately, the district court agreed with CSU and dismissed the case in agreeing with the language of C.R.S. § 23-30-111, stating there was no breach because the statute allows for temporary suspensions such as that of Spring 2020. The district court also dismissed the unjust enrichment claim based upon the same statute and contract, concluding it covered the same subject matter. Id. at 8.

Alderman appealed both rulings. The Colorado Court of Appeals (“COA”) upheld the dismissal of the breach of contract claims but reversed the district court’s ruling on the unjust enrichment claim. The COA emphasized that “the contract obligations were obviated when it invoked the statute,” leaving Plaintiffs with no enforcement rights because the statute made her contract claims unenforceable. Id. at 13. CSU then petitioned the Colorado Supreme Court on her unjust enrichment claim in July 2023, which the Supreme Court accepted. 

The Supreme Court’s Decision

The Colorado Supreme Court focused on whether an unjust enrichment claim can be properly asserted when it mirrors a contract that: (1) covers the same subject matter; and (2) remains legally enforceable.

The focus on unjust enrichment was determinative a “quasi-contract or contract implied-in-law that does not depend on a promise or privity between the parties,” but when an unjust enrichment claim and breach of contract involve the same subject matter, it is “mutually exclusive.” Id. at 18. The Supreme Court emphasized that this means “a party may not assert a claim for unjust enrichment is a valid contract covers the same subject matter,” which also holds true even if a party is unable to recover under the contract. Id. at 18-19. 

Yet, there are two exceptions to this rule for unjust enrichment and same subject matter of a breach of contract: (1) when the express contract fails or (2) the claim covers matters which are outside (or arose after) the contract. Id.

The Supreme Court held that breach of contract and unjust enrichment claim involved the same subject matter (i.e., tuition and fees for educational services). Id. at 19. It reasoned that the COA conflated the “breach of contract claim with the failure of the contract itself,” meaning that even though Alderman’s inability to prove CSU breached the contract by temporarily suspending in-person operations did not render the whole contract void or unenforceable. Id. In sum, all other contractual rights existed between both Alderman and CSU.

Ultimately, the Supreme Court ruled that Alderman’s unjust enrichment arguments merely serves as “gap-filler provision to provide a remedy” where a contract is silent about her “desired term” is not grounded in case law or principle; thus, Alderman’s approach for the Court to expand its reach of unjust enrichment jurisprudence is unfounded. Id. at 21. For these reasons, the Supreme Court opined that Alderman’s unjust enrichment claims fail as a matter of law.

Implications Of The Ruling

The Colorado Supreme Court’s ruling underscores the importance evaluating all claims raised by plaintiffs in both breach of contract and equity principles (such as unjust enrichment) to ensure those claims rise from the same subject matter to ultimate defeat the same claim raised through different legal theories at the outset of a lawsuit. 

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

Duane Morris Takeaways: On September 10 2024, in In Re Tivity Health Inc., et al., No. 23-0504 (6th Cir. Sept. 10, 2024), the U.S. Court of Appeals for the Sixth Circuit denied the defendants’ petition to appeal the U.S. District Court for the Middle District of Tennessee’s order granting class certification to plaintiffs in a securities fraud case. The ruling closes the door to an immediate appeal of the class certification ruling, leaving proceedings to continue in the district court. The decision is a must read for class action defendants seeking to overturn a district court’s Rule 23 class action certification ruling and exercising appellate options.

Case Background

In the underlying lawsuit, the plaintiff filed a lawsuit on behalf of a putative class of investors against Tivity Health and three individual defendants. The lawsuit asserted claims of violations of Sections 10(b) and 20(a) of the Securities and Exchange Act arising from disclosures the company made to investors about its acquisition of Nutrisystem, a prominent diet and nutrition company.

On June 7, 2022, the district court granted the motion of the lead plaintiff, Sheet Metal Workers Local No. 33, Cleveland District, Pension Fund, for Rule 23(a) class certification. The court certified a class of persons who purchased or otherwise acquired the common stock of Tivity Health between March 8, 2019 and February 19, 2020. The defendants filed a Rule 23(f) petition seeking permission to appeal the ruling. The Sixth Circuit granted the petition on November 21, 2022, concluding the district court had not undertaken a “rigorous” analysis of the Rule 23(a) factors. See In Re Tivity Health Inc., et al., No. 22-0502 (6th Cir. Nov. 21, 2022). The Sixth Circuit remanded the case to the district court.

Following remand, the district court again granted class certification pursuant to Rule 23(a). Thereafter, on June 22, 2023, the defendants filed a second Rule 23(f) petition, requesting permission to appeal the second class certification decision. The defendants primarily argued that the district court erroneously decided an open question of law about the scope of “scheme liability” under Section 10(b) of the Securities and Exchange Act.

On July 10, 2023, lead plaintiff Sheet Metal Workers Local No. 33 responded in opposition to the request. In the opposition, the plaintiff contended that the U.S. Supreme Court had ruled definitely on the “open” question in Lorenzo v. Sec. & Exch. Comm’n, 587 U.S. 71 (2019). In Lorenzo, the Supreme Court ruled that Section 10(b) of the Securities and Exchange Act encompassed a wide range of conduct, rejecting the argument that “scheme liability” was limited to deceptive acts. Consequently, the plaintiff argued there was no open question of law warranting interlocutory appeal of the district court’s (second) grant of class certification.

The Sixth Circuit’s Ruling

First, the Sixth Circuit articulated the Rule 23(f) standard for review of a petition to appeal immediately from an order granting or denying class certification. It explained the analysis under Rule 23(f) considers several factors, including: (1) the petitioner’s likelihood of success on the merits; (2) whether the certification decision turns on a novel or unsettled question of law; (3) whether the costs of continuing litigation may present such a barrier that later review is hampered; and (4) the posture of the case as it is pending before the district court.

In applying the Rule 23(f) standard, the Sixth Circuit addressed only the second factor. It roundly rejected the defendants’ argument that the district court’s ruling turned on a novel or unsettled question of law. The Sixth Circuit reasoned that the plaintiffs’ claim appeared to involve a “straightforward application” of the Supreme Court’s ruling on “scheme liability” in Lorenzo. The Sixth Circuit declined to address any of the other factors in the Rule 23(f) analysis.

Accordingly, finding no basis for interlocutory appeal, the Sixth Circuit entered a judgment denying the defendants’ petition for permission to challenge the grant of class certification at this stage of the litigation.

Implications For Class Action Defendants

As any corporation in a class action knows, a district court’s grant of class certification is among the most significant inflection points in the litigation. Rule 23(f) is a tool for litigants to challenge a class certification ruling at the earliest possible stage, before the parties spend years engaging in costly and needless litigation. Similar to the Supreme Court’s decision whether to grant a petition for certiorari, an appellate court has full discretion to grant or deny a Rule 23(f) petition. The Sixth Circuit’s ruling in In Re Tivity Health, Inc. illustrates the exceptionally high hurdle defendants face in overturning a district court’s grant of class certification.

By Tiffany E. Alberty, Alex W. Karasik, Gerald L. Maatman, Jr., and Brandon Spurlock

Duane Morris Takeaways: On August 9, 2024, Illinois Governor J.B. Pritzker signed House Bill 3773, which amends the Illinois Human Rights Act to address an employer’s use of artificial intelligence in employment-related decisions such as recruitment, hiring, promotion, retention, and discipline if it subjects an employee to discrimination.  The new law gives the Illinois Department of Human Rights (IDHR) the power to adopt any rules necessary for the implementation and enforcement of the statute, including determining rules on whether notice will be required and the timing and methods of such notice. The amendment will take effect January 1, 2026.

For employers with operations in Illinois who embrace the use of this cutting-edge technology, this new law is the latest compliance piece on a constantly evolving employment law checklist.

Background Of Amendment

The Illinois House introduced H.B. 3773 in February 2023 by legislative members looking to implement safeguards where artificial intelligence systems are used in employment-related decisions.  The bill received nearly unanimous support, passing the House 106-0, and the Senate 57-0.  The bill reached the governor’s desk in June 2024 and was signed before summer’s end.  The bill comes on the heels of Colorado’s sweeping AI legislation enacted in May 2024 covering not only employment related decisions, but also education, financial lending, government services, healthcare services, housing and insurance.  Illinois is now one of the 34 states that has either enacted or proposed legislation related to artificial intelligence.  Illinois lawmakers assert that the new law is a proactive step toward preventing the unintended consequences of using AI-technology in hiring.

Legislative Revisions

In essence, the new law prohibits an employer from using artificial intelligence if it has a discriminatory effect on employees based on a protected class or uses zip codes as a proxy for a protected class, and requires employers to give notice if the employer is using artificial intelligence for the following employment related purposes:

• • Recruitment
  • Hiring
  • Promotion
  • Renewal of employment
  • Selection for training or apprenticeship
  • Discharge
  • Discipline
  • Tenure (or the terms, privileges, or conditions of employment)

See 775 ILCS 5/2-102(L)(1).

In enacting the new law, Illinois legislatures braved the murky waters of attempting to define artificial intelligence, which has proven difficult for other state legislatures that tackled this challenge, resulting in a patchwork of definitions. (See, e.g., Connecticut S.B. 1103, Louisiana S.C.R. 49, Rhode Island H 6423, Texas H.B. 2060.)

Here, the amendment defines Artificial Intelligence as:

a machine-based system that, for explicit or implicit objectives, infers, from the input it receives, how to generate outputs such as predictions, content, recommendations, or decisions that can influence physical or virtual environments. . . [and] includes generative artificial intelligence.

See 775 ILCS 5/2-101(M).

It remains to be seen whether the Illinois definition will prove adequate or cause uncertainty and confusion.  Importantly, the new law empowers the IDHR to “adopt any rules necessary for the implementation and enforcement of this subdivision, including, but not limited to, rules on the circumstances and conditions that require notice, the time period for providing notice, and the means for providing notice.”  When the law goes into effect at the start of 2026, it will be important to monitor what rules and guidance the IDHR offers regarding implementation and enforcement.

Impact Of H.B. 3733 And Other Current And Proposed AI-Laws

As more employers incorporate artificial intelligence into their employment-related activities, it will be important to balance the benefits of using AI with the risk of running afoul of the ever evolving legal landscape, because not only is H.B. 3773 sweeping in scope, in that it impacts recruitment, hiring, promotion, retention, discipline, termination, benefits, etc., but it is also nebulous because it is not clear what it means to “ha[ve] the effect of subjecting employees to discrimination.”

Like other states across the country, Illinois lawmakers are leaning into implementing proactive measures to regulate artificial intelligence related to employment decisions despite the fact that the technology is still so new and adoption is in its early stages.  The challenge for Illinois employers will be staying abreast of how these new laws and how they are interpreted and enforced.

H.B. 3773 is not the first artificial intelligence law applicable to Illinois employers. In January 2020, the Illinois Artificial Intelligence Video Interview Act went into effect, which applies to all employers that use an AI tool to analyze video interviews of applicants for positions based in Illinois. The law requires employers to notify applicants before the interview that AI may be used to analyze their video interview and obtain the applicant’s consent.

In addition to these two relatively recent AI-based laws, in February 2024, the Illinois House sent H.B. 5116 to the State Senate, which is a proposed law that would require any “deployer” of an automated decision tool to perform an impact assessment and provide that assessment to the IDHR. The deployer also will have to notify a person who is subject to a “consequential decision” that an automated decision tool is being used to make, which could be in the context of employment, education, housing, healthcare, financial services, among other decision making categories.

Implication For Employers

As AI adoption continues to expand within workplace operations, although H.B. 3773 does not take effect until January 2026, Illinois businesses would be wise to begin assessing whether their AI-systems are at risk of running afoul of the statute.  Illinois employers currently using AI technology that may fall under the statute will want to work with counsel and experienced vendors to assess their systems for evidence of bias and/or discrimination.  As mentioned, it also will be important for Illinois employers to monitor any directives issued by the IDHR regarding the new law, in particular with respect to any rules around notice and/or consent.

By Gerald L. Maatman, Jr., Gregory S. Slotnick, and James Hearon

Duane Morris Takeaways: On July 10, 2024, in William Pace v. Hamilton Cove, A-4-23 (July 10, 2024 N.J.), the New Jersey Supreme Court held that consumer contract provisions waiving class actions are lawful under New Jersey law, even if they are not directly connected to an arbitration agreement.  The Supreme Court also found that while class action waivers in consumer contracts are not per se contrary to public policy, they may be unenforceable if they are found to be unconscionable or otherwise violate state contract law.  In a unanimous opinion, the Supreme Court analyzed claims by plaintiff-tenants seeking class certification in an action brought against their landlord, Hamilton Cove, for allegedly advertising that its apartments had “elevated, 24/7 security,” when in reality security cameras in the three-tower apartment complex did not function and there was no around-the-clock security.  The Supreme Court reversed the New Jersey Appellate Division, finding that in the case before it, the plaintiff-tenants clearly and unambiguously waived their right to maintain a class action knowingly and voluntarily by signing a lease agreement including a standalone class action waiver, despite the fact that the class action waiver was not part of an arbitration agreement or arbitration provision. 

The Supreme Court held that class action waivers standing alone and apart from a mandatory arbitration provision are not per se unenforceable.  It then analyzed the lease language at issue and held that the lease was written in a simple, clear, understandable, and easily readable way as required by the New Jersey Consumer Fraud Act (CFA), putting plaintiff-tenants on notice that they could only proceed with a lawsuit against the landlord defendants on an individual basis.  Under the lease and facts of the case, the Supreme Court held that the landlord defendants’ standalone class action waiver provision was lawful, relying on factors including the parties’ relative bargaining power, no indicia of economic compulsion, and the class action waiver not impermissibly prohibiting plaintiff-tenants from individually vindicating their statutory rights under the CFA.  As such, the class action waiver was not unconscionable, and the lease was therefore enforceable. 

The opinion will likely have a far-reaching impact for businesses using arbitration programs in New Jersey and beyond. 

Case Background

The landlord defendants operate Hamilton Cove, a three-building apartment complex located in Weehawken, New Jersey housing hundreds of apartments along the Hudson River waterfront.  Id. at 4-5.  The plaintiff-tenants claimed that in April 2020, Hamilton Cove advertised on its website and on social media that its apartments had “elevated, 24/7 security,” and that during an apartment tour before moving in, Hamilton Cove’s leasing officer told them that security personnel would be stationed 24 hours a day, 7 days a week.  Id. at 5.  The plaintiff-tenants entered into lease agreements in 2020, which allowed prospective tenants three days to consult with an attorney, after which the releases would become final.  Id.  The leases included multiple addenda – one of which was a “Class Action Waiver” addendum – which were all incorporate into the lease.  Id. at 5-6.  The Class Action Waiver included language in bold and the plaintiff-tenants agreed to waive their ability to participate either as a class representative or members of any class action claims against the landlord-defendants.  Id. at 6.

After moving into their apartments, the plaintiff-tenants found that the Hamilton Cove security cameras did not work, and there was no 24/7 security.  They claimed that the advertised “24/7 security” drew them to lease their apartments and pay the leasehold price, especially due to their allegation that Weehawken has a property crime rate approximately one-third higher than New Jersey’s state average.  Id. at 7.

On March 31, 2022, the plaintiff-tenants filed the Complaint, claiming common law fraud and violation of the CFA.  Id.  They specifically alleged that the landlord-defendants engaged in an “unconscionable commercial practice” of knowingly making false representations regarding 24/7 security on their premises, and they sought to certify a class comprised of similarly-situated tenants.  Id. at 7-8.

After landlord-defendants moved to dismiss the Complaint for failure to state a claim or, alternatively, to strike plaintiffs’ class allegations – arguing that plaintiff-tenants waived their ability to proceed as a class when they signed the class action waivers – the trial court denied the motions.  Id. at 8.  After landlord-defendants appealed the decision, the Appellate Division affirmed the trial court’s denial, holding that “a class action waiver in a contract that does not contain a mandatory arbitration provision” is unenforceable as a matter of law and public policy.  Id. at 8-9.  The New Jersey Appellate Division found that unless rendered unenforceable by the presence of an arbitration agreement, class action waivers are clearly contrary to the public policy of New Jersey, regardless of whether they are unconscionable or part of an adhesion contract.  Id. at 10.

The New Jersey Supreme Court’s Decision

The New Jersey Supreme Court began by analyzing class actions as a procedural device and the legal requirements necessary to certify a class action.  Id. at 16-17.  While acknowledging that class action requirements should be “liberally construed” (id. at 18), the Supreme Court disagreed with the Appellate Division’s establishment of a bright-line rule that a waiver of the right to maintain a class action in unenforceable absent a mandatory arbitration agreement.  Id. at 19.  The Supreme Court held that an arbitration provision is not necessary and is separate to a class waiver’s enforceability, and that New Jersey law supports the contractual waiver of many rights that advance important goals, such as the right to a jury trial, provided that the requisite procedural safeguards surrounding the waiver are met.  Id. at 19-20.  The Supreme Court reiterated New Jersey’s strong public policy favoring the freedom to contract, and noted that legislatures can override this freedom in specific settings – which has not occurred in the context of class action waivers.  It stated that in New Jersey, there is neither a controlling statutory provision expressly permitting class actions, nor a clear statement of public policy disfavoring class action waivers – as such, class action waivers must be evaluated through the lens of unconscionability and traditional tenants of contract formation.  Id. at 23-24.  As a result, the Supreme Court held that class action waivers standing alone and apart from a mandatory arbitration provision are not per se unenforceable, but that particular waivers may be unenforceable if unconscionable or invalid under general contract principles.  Id. at 24.  It then considered the specific waiver in the case before it.  Id.

The Supreme Court confirmed that in order to analyze whether the class action waiver in the Hamilton Cove lease signed by plaintiff-tenants was unconscionable, a fact-sensitive analysis was required.  Id. at 25.  Factors considered by the Supreme Court to determine whether the class waiver was an unenforceable contract of adhesion, known as the Rudbart factors, included: (1) the subject matter of the contract; (2) the parties’ relative bargaining power; (3) the degree of economic compulsion motivating the adhering party; and (4) the public interests affected by the contract.  Id. at 25-26.  The Supreme Court found that plaintiff-tenants knowingly and voluntarily waived their right to maintain a class action because the waiver language was written in a simple, clear, understandable and easily readable way as required by the CFA, and it clearly and unambiguously put plaintiff-tenants on notice that they could only proceed with a lawsuit against landlord-defendants on an individual basis.  Id. at 30.

The Supreme Court found that even if the lease could be considered a contract of adhesion, the Rudbart factors favored enforceability, since the parties’ relative bargaining power did not favor either party and plaintiff-tenants had time to consult with an attorney and were free to seek alternative housing if they did not agree with the lease’s terms.  Id. at 30-31.  It held that plaintiff-tenants were not under economic compulsion, and likely had the ability to choose from a vast selection of apartments available for a monthly rent comparable to the $3,700 rent at issue here.  Id. at 31-32.  Finally, the Supreme Court found that plaintiff-tenants were still able to pursue their CFA claims on an individual basis against the landlord-defendants, and that the class waiver did not prohibit plaintiffs, or similarly-situated Hamilton Cove tenants, from individually vindicating their statutory rights under the CFA.  Id. at 33.  Thus, the Supreme Court held that the class waiver was not unconscionable and was enforceable, reversing the Appellate Division’s judgment.  Id. at 34.

Implications For New Jersey Businesses And Employers

The New Jersey Supreme Court’s opinion seemingly exceeds the landlord-tenant relationship, and may be characterized as a victory for New Jersey employers.  As a result of the ruling, New Jersey businesses may seek to enforce a valid class action waiver separate and apart from an arbitration agreement or arbitration provision.  While the class action waiver itself must be presented in a clear and direct manner, these waivers are not per se unenforceable on their face.  As a best practice in light of the decision, New Jersey employers and businesses alike should ensure that any class action waivers provide for a reasonable period of time for review, and should strongly consider adding language providing time for a prospective signee to have the language reviewed by an attorney prior to signing.  However, New Jersey businesses that do not wish to include mandatory arbitration provisions in contracts now have a clear path to still including class action waivers in such contracts, which are not per se unlawful, but which must still be presented in a manner that is not unconscionable based on individual circumstances.