Class Action Defense

By Gerald L. Maatman, Jr., Jennifer A. Riley, Greg Slotnick, and Maria Caceres-Boneau

Duane Morris Takeaways: On May 6, 2024, the Beard Group sponsored the Class Action Money & Ethics Conference in New York City. The agenda is here. During the conference, over 150 attendees discussed key issues impacting class action litigation in 2024. We were privileged to chair the Conference and present the keynote address on class action litigation trends for the past year and what 2024 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.

The pace of class action settlements thus far in 2024 shows no signs of slowing down. In the first four months of the year, three settlements of over $1 billion are in the books and the total (just for the top five settlements in each area) are at $19.8 billion.

In terms of class certification motions, the Plaintiffs bar successfully secured certification in 74% of cases over the past year. Those figures ranged from nearly 97% in securities fraud lawsuits to 14% in data breach 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 2023, 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.

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 Use Of Qualified Settlement Funds

A panel of plaintiffs and defense lawyers addressed best practices in establishing and working on class-wide settlement with qualified settlement funds (QSF).

Several settlement administrators joined the panel and discussed new challenges in handling QSF funds posed by fraud (both by claimants and cyber criminals), as well as better interest rates that result in generation of more money for distribution.

Panel On Class Notice Strategies

The next panel focused on trends for class notice in 2024 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 2% 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 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.

ESG Class Action Litigation Panel

Class actions over environmental. social, and governance issues went mainstream in the past year. Panelists tracking these cases 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, Case No. 20-1199 (U.S. June 29, 2023). Both plaintiffs’ lawyers and defense counsel anticipate more litigation in this space.

Panel On “Lead Generation” Techniques In Mass Torts & Class Actions

The final panel explored new strategies utilized by the plaintiffs’ bar in reaching out to potential litigants in mass tort and class action litigation situations. The numbers behind the advertising – on television, social media, and radio – top $1.1 billion on an annual basis. On average, plaintiffs’ law firms run over 45,000 advertisements per day across the country with mass tort cases constituting the majority of ad placements.

The panelists opined that nuclear verdicts, large class action settlements, and social inflations are the main factors fueling the advertising. They concluded that these forms of advertising are a staple of the litigation system and not going away anytime soon.

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.

Duane Morris Takeaway: Join Duane Morris attorneys in Chicago for this special event! Duane Morris’ annual Developments in Workplace Law and Practice seminar series provides our clients and friends with a comprehensive update of important employment, labor relations, benefits and immigration law developments over the past year, as well as imminent changes that may seriously impact their businesses. Emphasis is placed on understanding the practical implications of these developments and the key strategies that immediately can be implemented to deal with them efficiently and effectively. This session encourages lively, thought-provoking discussions. Participants will have the opportunity to network with their peers and the presenters before and after the event. The program is of particular interest to business owners and executives, in-house counsel and HR professionals.

This program is open to all – click here to attend in person!

About the Chicago Program

Join Dan Canales, Alex Karasik, Jennifer Long, Jerry Maatman, John Reade, Jen Riley, Lisa Spiegel and Brandon Spurlock for a discussion of the following topics:

What’s New for Illinois Employers in 2024 and Beyond?

Hear all about current updates for Illinois employers including the latest regulatory guidance on mandatory paid leave requirements, how to prepare for mandatory pay transparency requirements beginning in 2025, the latest requirements impacting employers using temporary labor, and other anticipated employee-friendly changes in the legislative pipeline for 2025 and beyond.

Learn how recent federal developments impact your employment practices, including the Department of Labor’s regulatory action on independent contractor and employee misclassification, the NLRB’s recent regulatory action on joint employer issues, how OSHA’s new union representative walkaround rule impacts non-union employers, and other nationwide trends in state and local legislation.

Class Action Review: Top Developments Employers Should Expect for 2024 and Beyond

Class action litigation presents one of the most significant risks to corporations today. Learn the latest highlights in class action trends, decisions and settlements in crucial areas impacting Corporate America, including civil rights, employment discrimination, wage payment, labor and other class and collective actions brought by current and former employees. We will also share our insight on what companies and corporate counsel can expect to see in 2024 and beyond.

Digital Developments: What Businesses Need to Know About AI, Privacy and Data Breach Class Actions

Emerging technologies such as AI, biometric timekeeping software and cloud storage of data have exploded onto the scene of the modern workplace. Hear the latest developments about:

• How employers are handling the emergence of AI
• How courts are adjudicating privacy class actions following two major Illinois Supreme Court decisions involving the Biometric Information Privacy Act (BIPA)
• What employers need to know about the latest trend in class action litigation: data breach claims

Employee Benefits Update

The rules governing employee benefit plans are always changing and it is no different in 2024. We will discuss the biggest issues that employers should keep in mind this year – including:

• Health and welfare plan fiduciary developments
• Recent guidance under SECURE 2.0 that impacts all 401(k) plan
• Updates on ERISA retirement plan litigation and the steps that employers can take to minimize their potential exposure

The Latest Updates for Employers on Immigration Sponsorship and Immigration Related Investigations

Employer sponsorship of employees for work authorization and green cards can be a long, complex process. Over time, organizations, jobs, locations, and employees all change. Learn what rights employers have during the sponsorship process to stop, change or redirect sponsorship efforts and how those decisions will impact the sponsored employees.

USCIS, ICE and the DOJ regularly investigate employers for immigration-related compliance during visa sponsorship, and immigration-related discrimination during the I-9 and E-Verify processes. These investigations can be onerous with unexpected government visits to employer locations, large document productions and significant fines for civil liability. Get the latest updates for employer compliance in these situations.

Sign up today and join us at this important event!

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

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

Case Background

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

The Basis Of The Ninth Circuit’s Decision

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

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

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

Implications Of The Ruling

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