Class Action Defense

June 6, 2024 by Class Action Defense

The Class Action Weekly Wire – Episode 58: Key BIPA Developments In Class Action Litigation

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 significant rulings and developments in the biometric privacy class action sphere.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Google Podcasts, the Samsung Podcasts app, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, YouTube or our RSS feed.

Episode Transcript

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

Tyler Zmick: Thanks, Jen, very happy to be here.

Jennifer: Today on the podcast we are discussing the Illinois Biometric Information Privacy Act, or sometimes called BIPA, as well as notable decisions from courts over the past 18 months, highlighting a recent 2024 ruling. Tyler, could you give our listeners a brief overview of the BIPA?

Tyler: Absolutely, Jen. So the statute was enacted in 2008, and BIPA is a state law that regulates the collection, use, and handling of biometric identifiers and biometric information by private entities. Subject to a couple limited exceptions, BIPA generally prohibits the collection or use of a person’s biometric data without first providing the required notice, obtaining their written consent, and also posting a publicly available retention and destruction schedule.

Jennifer: Thanks very much for that overview. There are two major Illinois Supreme Court rulings from 2023 that govern the BIPA landscape and significantly impacted the way BIPA litigation is playing out. Tyler, you no doubt know which two cases I’m referring to – could you tell our listeners a bit about them?

Tyler: Sure, absolutely. So, these two decisions, which are a little bit old at this point – they were both issued in February of 2023 – had a profound impact on the interpretation of BIPA and the landscape of BIPA litigation. So the first ruling was issued in a case called Tims v. Black Horse Carriers, and in that case the Illinois Supreme Court held that a 5 year statute of Limitations applies to all claims brought under BIPA. So this really adds to the risks that employers and other companies who do business in Illinois face in terms of class action exposure, as the court rejected defendants attempts to argue that a shorter one or two year statute of limitations applies.

The other ruling, issued later in February of 2023, came in a case called Cothron v. White Castle, and in that case the court decided whether each fingerprint or other type of biometric data being scanned is its own discrete violation of the statute. And so, as background, the Seventh Circuit, the federal appellate court, was uncertain how to answer that sort of novel question of state law. And so it kicked it over to the Illinois Supreme Court to ask for clarification, and the court held that BIPA claims accrue not only once upon the initial collection or disclosure of biometric data, but rather each independent time that a company collects or discloses biometric information. And so this ruling, it really exponentially increased the monetary damages in BIPA class actions that a company can face, especially in the employment context – because you generally have a fact pattern where employees are scanning their fingerprints to clock in and out. And so they’re doing that multiple times a day when they start their shifts, when they go on their lunch breaks, and then when they clock in after lunch, and then clock out for the day. And so Cothron basically held that each time they scan their fingerprint is a separate and independent violation. And this could, for just one employee amount to, you know, over 200 work days per year – we’re talking a lot of potential damages.

All of that said, the Illinois Supreme Court acknowledged that it’s ruling on the violation issue and the accrual issue was somewhat Draconian, and so that invited the Illinois legislature to tackle the issue by clarifying that, you know, maybe a violation only occurs upon the first scan of biometric data. The legislature, as it’s you know, customary to do, took its time, drag its feet a little bit, but they did get around to passing a statutory amendment that now clarifies that for purposes of collecting or disclosing biometric data, the violation only occurs the first time that a company scans that type of information. And so both houses of the Illinois legislature have actually approved and passed the amendment. As of today, the governor is waiting to sign the bill, he’s expected to do so. Once Governor Pritzker signs off, that law will take effect, and Cothron will basically be no longer good law on a going forward basis.

Jennifer: Thanks, Tyler, great overview. So the Tims and Cothron rulings really eviscerated two of the key BIPA defenses used by companies over the past several years, however, companies still can use other defenses – such as whether biometric data was actually collected, used, or stored; such as whether and to what extent alleged violations actually occurred in Illinois for purposes of satisfying extra territoriality limitations; as well as the constitutionality of the potentially excessive or crushing damages that could resolve from a finding that each scan was a separate violation; companies can also call upon Rule 23(b)(3) arguments regarding whether a class action really is the appropriate vehicle to litigate a bit of a dispute based on superiority or predominance concerns.

Tyler: Exactly, Jen. You know, those defenses do exist, however, companies really need to be aware of the dangers associated with collecting or storing biometric data without BIPA compliant policies in place. As just one example, very recently the U.S. District Court for the Northern District of Illinois granted class certification to a class action plaintiffs where there are at least 160,000 class members, probably much more. And the case involves Amazon’s “virtual try-on” technology. Basically, it is a virtual technology where a person can upload a photo or video of themselves and then superimpose maybe make up or other fashion products onto their face to see how the product would look, and plaintiffs claim that that technology involves biometric data in the form of scans of face geometry. And in granting class certification in this case, the court dealt Amazon a significant blow in its efforts to block class certification. This decision is really the most recent example of success by the plaintiffs’ bar in a string of victories for class action privacy lawsuits across Illinois, and it illustrates that even the largest and most sophisticated companies can face legal exposure in connection with their biometric collection and retention practices.

Jennifer: We will certainly keep listeners updated on the developments in that case. What about settlement numbers in 2023, in BIPA class actions – what were the monetary totals paid out to plaintiffs?

Tyler: Sure – in BIPA related class actions, 2023 saw robust settlements, but actually a decline when compared to 2022. So if you’re looking at the top 10 BIPA class action settlements in 2023, they totaled $147.86 million, and that is compared to in 2022, $278.9 million.

Jennifer: Well, perhaps a bit of good news then, for employers and companies on the declining settlement value front. Thanks so much for being here again today, Tyler, and thank you so much to our listeners for tuning in.

Tyler: Thanks for having me, Jen, and thanks again to all of our listeners.

Jennifer: See you next week on the Class Action Weekly Wire!

June 5, 2024June 5, 2024 by Class Action Defense

No Standing, No Settlement: Sixth Circuit Vacates Settlement In Class Action Lawsuit Challenging COVID-19 Vaccine Mandate

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

Duane Morris Takeaways: On June 3, 2024, in Albright et al v. Ascension Michigan et al, No. 23-1996 (6th Cir. June 3, 2024), a three-judge panel of the Sixth Circuit reversed and remanded a district court’s approval of a nationwide class action settlement because the plaintiffs lacked Article III standing. The case illustrates the fundamental requirement of federal court jurisdiction that all named plaintiffs have an alleged injury traceable to the settling defendants. The decision is required reading for litigants seeking court approval of a Rule 23 class action settlement.

Case Background

On July 12, 2022, over 100 current or former employees sued the Michigan-based Ascension healthcare organization for alleged violations of Title VII and Michigan state law occurring at its Michigan hospitals. The plaintiffs claimed that the defendant entities discriminated against them based on religion and unlawfully denied their request for a religious exemption from the organization’s mandatory COVID-19 vaccination policy. The plaintiffs sought to represent a Rule 23 class of solely-Michigan-based workers.

On April 24, 2023, the parties jointly moved the U.S. District Court for the Western District of Michigan for preliminary approval of a Rule 23 settlement. In the proposed settlement agreement, the settling parties expanded the scope of the lawsuit to the parent company of the Michigan defendant entities and 24 affiliate hospitals, clinics, and other entities in Alabama, Washington, D.C., Indiana, Kansas, Maryland, Michigan, Missouri, New York, Oklahoma, Texas, Tennessee and Wisconsin. Two days later, the district court preliminarily approved the settlement and issuance of notice to the class.

The settling parties filed an amended complaint to facilitate the proposed nationwide class action settlement of claims challenging the mandatory vaccination policy in place at Ascension’s various entities. The amended complaint reflected the same Michigan-based plaintiffs as the original complaint.

About 2,700 of the 4,000 workers who received notice opted-in to the settlement, with 281 workers opting out. Nine opt-ins who had worked for the newly-added entities objected to the settlement on August 23, 2023.

After a final fairness hearing held on October 5, 2023, the district court granted the settling parties’ motion for final approval of the settlement on November 2, 2023 over the objections of the nine objectors.

The objectors filed two notices of appeal to the Sixth Circuit, which were consolidated together. In addition to opposing the settlement on standing grounds, the objectors argued that, by expanding the scope of the settlement class to a nationwide group, the proposed settlement diluted the value of back pay payouts each class member would receive.

The Sixth Circuit’s Ruling

The panel judges of the Sixth Circuit, in a brief unpublished opinion, unanimously ruled that the settlement failed on standing grounds.

For Article III standing to exist, the defendant’s alleged actions must have caused the plaintiff to suffer a concrete “injury-in-fact.” In a class action, for any defendant, at least one named plaintiff must have an injury traceable to the defendant.

Writing for the panel, Circuit Judge Cole reasoned that the named plaintiffs had no injury traceable to the 25 entities added to the lawsuit for settlement purposes. In expanding the scope of the defending entities without “add[ing] any new named plaintiffs to match the additional affiliate defendants,” the settling parties failed to establish subject matter jurisdiction for the district court to approve the settlement. Id. at 3.

Absent standing, the Sixth Circuit concluded that the 95 Michigan-based named plaintiffs could not settle claims on behalf of thousands of other employees who had worked for Ascension entities outside of Michigan.

Accordingly, the Sixth Circuit vacated the district court’s orders approving the class-wide settlement, certifying the settlement class, and awarding attorneys’ fees and expenses to plaintiffs’ counsel. The Sixth Circuit remanded the case to the district court for further proceedings.

Implications For Employers

The ruling in Ascension illustrates that standing challenges to putative class actions are a powerful tool not only at the pleading stage, but at all phases of class action litigation.

Prior to resolving any Rule 23 claims — particularly for nationwide settlements — it is essential for counsel defending class actions to vet the standing of each named plaintiff. Otherwise, just as the litigants in Ascension experienced, even a settlement approved in final form by a district court is vulnerable to being unraveled on appeal.

June 3, 2024June 3, 2024 by Class Action Defense

Four Best Practices For Deterring Cybersecurity And Data Privacy Class Actions And Mass Arbitrations

By Justin Donoho

Duane Morris Takeaway: Class action lawsuits and mass arbitrations alleging cybersecurity incidents and data privacy violations are rising exponentially. Corporate counsel seeking to deter such litigation and arbitration demands from being filed against their companies should keep in mind the following four best practices: (1) add or update arbitration clauses to mitigate the risks of mass arbitration; (2) use cybersecurity best practices, including continuously improving and prioritizing compliance activities; (3) audit and adjust uses of website advertising technologies; and (4) update website terms of use, data privacy policies, and vendor agreements.

Best Practices

Add or update arbitration agreements to mitigate the risks of mass arbitration

Many organizations have long been familiar with the strategy of deterring class and collective actions by presenting arbitration clauses containing class and collective action waivers prominently for web users, consumers, and employees to accept via click wrap, browse wrap, login wrap, shrink wrap, and signatures. Such agreements would require all allegedly injured parties to file individual arbitrations in lieu of any class or collective action. Moreover, the strategy goes, filing hundreds, thousands, or more individual arbitrations would be cost-prohibitive for so many putative plaintiffs and thus deter them from taking any action against the organization in most cases.

Over the last decade, this strategy of deterrence was effective.^[1] Times have changed. Now enterprising plaintiffs’ attorneys with burgeoning war chests, litigation funders, and high-dollar novel claims for statutory damages are increasingly using mass arbitration to pressure organizations into agreeing to multimillion dollar settlements, just to avoid the arbitration costs. In mass arbitrations filed with the American Arbitration Association (AAA) or Judicial Arbitration and Mediation Services (JAMS), for example, fees can total millions of dollars just to defend only 500 individual arbitrations.^[2] One study found upfront fees ranging into the tens of millions of dollars for some large mass arbitrations.^[3] Companies with old arbitration clauses have been caught off guard with mass arbitrations, have sought relief from courts to avoid having to defend these mass arbitrations, and this relief was rejected in several recent decisions where the court ordered the defendant to arbitrate and pay the required hefty mass arbitration fees.^[4]

If your organization has an arbitration clause, then one of the first challenges for counsel defending many newly served class action lawsuits these days is determining whether to move to compel arbitration. Although it could defeat the class action, is it worth the risk of mass arbitration and the potential projected costs of mass arbitration involved? Sometimes not.

Increasingly organizations are mitigating this risk by including mechanisms in their arbitration clauses such as pre-dispute resolution clauses, mass arbitration waivers, bellwether procedures, arbitration case filing requirements, and more. This area of the law is developing quickly. One case to watch will be one of the first appellate cases to address the latest trend of mass arbitrations — Wallrich v. Samsung Electronics America, Inc., No. 23-2842 (7th Cir.) (argued February 15, 2024, at issue is whether the district court erred in ordering the BIPA defendant to pay over $4 million in mass arbitration fees).

Use cybersecurity best practices, including continuously improving and prioritizing

IT organizations have long been familiar with the maxim that they should continuously improve their cybersecurity measures and other IT services. Continuous improvement is part of many IT industry guidelines, such as ISO 27000, COBIT, ITIL, the NIST Cybersecurity Framework (CSF) and Special Publication 800, and the U.S. Department of Energy’s Cybersecurity Capability Maturity Model (C2M2). Continuous improvement is becoming increasingly necessary in cybersecurity, as organizations’ IT systems and cybercriminals’ tools multiply at an increased rate. The volume of data breach class actions doubled three times from 2019-2023:

Continuous improvement of cybersecurity measures needs to accelerate accordingly. As always, IT organizations need to prioritize. Priorities typically include:

improving IT governance;
complying with industry guidelines such as ISO, COBIT, ITIL, NIST, and C2M2;
deploying multifactor authentication, network segmentation, and other multilayered security controls;
staying current with identifying, prioritizing, and patching security holes as new ones continuously arise;
designing and continuously improving a cybersecurity incident response plan;
routinely practicing handling ransomware incidents with tabletop exercises (may be covered by cyber-insurers); and
implementing and continuously improving security information and event management (SIEM) systems and processes.

Measures like these to continuously improve and prioritize: (a) will help prevent a cybersecurity incident from occurring in the first place; and (b) if one occurs, will help the victim organization of cybertheft defend against plaintiffs’ arguments that the organization failed to use reasonable cybersecurity measures.

Audit and adjust uses of website advertising technologies

In 2023, plaintiffs filed over 250 class actions 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, respectively. This software, often called website advertising technologies or “adtech” (and often referred to by plaintiffs as “tracking technologies”) is a common feature on many websites in operation today — millions of companies and governmental organizations have it.^[5] These lawsuits generally allege that the organization’s use of adtech violated federal and state wiretap statutes, consumer fraud statutes, and other laws, and often seek hundreds of millions of dollars in statutory damages. The businesses targeted in these cases so far mostly have been healthcare providers but also 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. The legal landscape in this area has only begun to develop under many plaintiffs’ theories of liability, statutes, and common laws. The adtech alleged has included not only Meta Pixel and Google Analytics but also dozens of the hundreds or thousands of other types of adtech. All this legal uncertainty multiplied by requested statutory damages equals serious business risk to any organization with adtech on its public-facing website(s).

An organization may not know that adtech is present on its public-facing websites. It could have been installed on a website by a vendor without proper authorization, for example, or as a default without any human intent by using some web publishing tools.

Organizations should consider whether to have an audit performed before any litigation arises as to which adtech is or has been installed on which web pages when and which data types were transmitted as a result. Multiple experts specialize in such adtech audits and serve as expert witnesses should any litigation arise. An adtech audit is relatively quick and inexpensive and it might be cost-beneficial for an organization to perform an adtech audit before litigation arises because: (a) it might convince an organization to turn off some of its unneeded adtech now, thereby cutting off any potential damages relating to that adtech in a future lawsuit; (b) in the event of a future lawsuit, such an audit would not be wasted — it is one of the first things adtech defendants typically perform upon being served with an adtech lawsuit; and (c) an adtech audit could assist in presently updating and modernizing website terms of use, data privacy policies, and vendor agreements (next topic).

Update and modernize website terms of use, data privacy policies, and vendor agreements

Organizations should consider whether to modify their website terms of use and data privacy policies to describe the organization’s use of adtech in additional detail. Doing so could deter or help defend a future adtech class action lawsuit similar to the many that are being filed today, alleging omission of such additional details, raising claims brought under various states’ consumer fraud acts, and seeking multimillion-dollar statutory damages.

Organizations should consider adding to contracts with website vendors and marketing vendors clauses that prohibit the vendor from incorporating any unwanted adtech into the organization’s public-facing websites. That could help disprove the element of intent at issue in many claims brought under the recent explosion of adtech lawsuits.

Implications For Corporations: Implementation of these best practices is critical to mitigating risk and saving litigation dollars. Click to learn more about the services Duane Morris provides in the practice areas of Class Action Litigation; Arbitration, Mediation, and Alternative Dispute Resolution; Cybersecurity; Privacy and Data Protection; Healthcare Information Technology; and Privacy and Security for Healthcare Providers.

[1] In 2015, for example, a large study found that of 33 banks that had engaged in practices relating to debit card overdrafts, 18 endured class actions and ended up paying out $1 billion to 29 million customers, whereas 15 had arbitration clauses and did not endure any class actions. See Consumer Protection Financial Bureau (CPFB), Arbitration Study: Report to Congress, Pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act § 1028(a) at Section 8, available at https://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf. These 15 with arbitration clauses paid almost nothing—less than 30 debit card customers per year in the entire nation filed any sort of arbitration dispute regarding their cards during the relevant timeframe. See id. at Section 5, Table 1. Another study of AT&T from 2003-2014 found similarly, concluding, “Although hundreds of millions of consumers and employees are obliged to use arbitration as their remedy, almost none do.” Judith Resnik, Diffusing Disputes: The Public in the Private of Arbitration, the Private in Courts, and the Erasure of Rights, 124 Yale L.J. 2804 (2015).

[2] AAA, Consumer Mass Arbitration and Mediation Fee Schedule (amended and effective Jan. 15, 2024), available at https://www.adr.org/sites/default/files/Consumer_Mass_Arbitration_and_Mediation_Fee_Schedule.pdf; JAMS, Arbitration Schedule of Fees and Costs, available at https://www.jamsadr.com/arbitration-fees.

[3] J. Maria Glover, Mass Arbitration, 74 Stan. L. Rev. 1283, 1387 & Table 2 (2022).

[4] See, e.g., BuzzFeed Media Enters., Inc. v. Anderson, 2024 WL 2187054, at *1 (Del. Ch. May 15, 2024) (dismissing action to enjoin mass arbitration of claims brought by employees); Hoeg v. Samsung Elecs. Am., Inc., No. 23-CV-1951 (N.D. Ill. Feb. 2024) (ordering defendant of BIPA claims brought by consumers to pay over $300,000 in AAA filing fees); Wallrich v. Samsung Elecs. Am., Inc., 2023 WL 5935024 (N.D. Ill. Sept. 12, 2023) (ordering defendant of BIPA claims brought by consumers to pay over $4 million in AAA fees); Uber Tech., Inc. v. AAA, 204 A.D.3d 506, 510 (N.Y. App. Div. 2022) (ordering defendant of reverse discrimination claims brought by customers to pay over $10 million in AAA case management fees).

[5] See, e.g., Customer Data Platform Institute, “Trackers and pixels feeding data broker stores,” reporting “47% of websites using Meta Pixel, including 55% of S&P 500, 58% of retail, 42% of financial, and 33% of healthcare” (available at https://www.cdpinstitute.org/news/trackers-and-pixels-feeding-data-broker-data-stores/); builtwith, “Facebook Pixel Usage Statistics,” offering access to data on over 14 million websites using the Meta Pixel, stating, “We know of 5,861,028 live websites using Facebook Pixel and an additional 8,181,093 sites that used Facebook Pixel historically and 2,543,263 websites in the United States” (available at https://trends.builtwith.com/analytics/Facebook-Pixel).

May 31, 2024 by Class Action Defense

Webinar Replay: Privacy Class Action Litigation Trends

Duane Morris Takeaways: The significant stakes and evolving legal landscape in privacy class action rulings and legislation make the defense of privacy class actions a challenge for corporations. As a new wave of wiretapping violation lawsuits target companies that use technologies to track user activity on their websites, there is significant state legislative activity regarding data privacy across the country. In the latest edition of the Data Privacy and Security Landscape webinar series, Duane Morris partners Jerry Maatman, Jennifer Riley, and Colin Knisely provide an in-depth look at the most active area of the plaintiffs’ class action bar over the past year.

The Duane Morris Class Action Defense Group recently published its desk references on privacy and data breach class action litigation, which can be viewed on any device and are fully searchable with selectable text. Bookmark or download the e-books here: Data Breach Class Action Review – 2024 and Privacy Class Action Review – 2024.

May 30, 2024May 30, 2024 by Alex W. Karasik

Announcing A New ABA Article By Duane Morris Partner Alex Karasik Explaining The EEOC’s Artificial Intelligence Evolution

By Alex W. Karasik

Duane Morris Takeaway: Available now is the recent article in the American Bar Association’s magazine “The Brief” by Partner Alex Karasik entitled “An Examination of the EEOC’s Artificial Intelligence Evolution.”[1] The article is available here and is a must-read for all employers and corporate counsel!

In the aftermath of the global pandemic, employee hiring has become a major challenge for businesses across the country, regardless of industry or region. Businesses want to accomplish this goal in the most time- and cost-effective way possible. Employers remain in vigorous pursuit of anything that can give them an edge in recruiting, hiring, onboarding, and retaining the best talent. In 2023, artificial intelligence (AI) emerged as the focal point of that pursuit. The use of AI offers an unprecedented opportunity to facilitate employment decisions. Whether it is sifting through thousands of resumes in a matter of seconds, aggregating information about interviewees’ facial expressions, or generating data to guide compensation adjustments, AI has already had a profound impact on how businesses manage their human capital.

Title VII of the Civil Rights Act of 1964, which is the cornerstone federal employment discrimination law, does not contain statutory language specifically about the use of AI technologies, which did not emerge until several decades later. However, the U.S. Equal Employment Opportunity Commission (EEOC), the federal government agency responsible for enforcing Title VII, has made it a strategic priority to prevent and redress employment discrimination stemming from employers’ use of AI to make employment decisions regarding prospective and current employees.

Focusing on the EEOC’s pioneering efforts in this space, this article explores the risks of using AI in the employment context. First, the article examines the current litigation landscape with an in-depth case study analysis of the EEOC’s first AI discrimination lawsuit and settlement. Next, to figure out how we got here, the article travels back in time through the origins of the EEOC’s AI initiative to present-day outreach efforts. Finally, the article reads the EEOC’s tea leaves about the future of AI in the workplace, offering employers insight into how to best navigate the employment decision-making process when implementing this generation-changing technology.

Implications For Employers: Similar to the introduction of technologies such as the typewriter, computer, internet, and cell phone, there are, understandably, questions and resulting debates about the precise impact that AI will have on the business world, including the legal profession. To best adopt any new technology, one must first invest in understanding how it works. The EEOC has done exactly that over the last several years. The businesses that use AI software to make employment decisions must similarly make a commitment to fully understand its impact, particularly with regard to applicants and employees who are members of protected classes. The employment evolution is here, and those who are best equipped to understand the risks and rewards will thrive in this exciting new era.

[1] THE BRIEF ❭ Winter 2024 An Examination of the EEOC’s Artificial Intelligence Evolution VOLUME 53, NUMBER 2, WINTER 2024. © 2024 BY THE AMERICAN BAR ASSOCIATION. REPRODUCED WITH PERMISSION. ALL RIGHTS RESERVED. THIS INFORMATION OR ANY PORTION THEREOF MAY NOT BE COPIED OR DISSEMINATED IN ANY FORM OR BY ANY MEANS OR STORED IN AN ELECTRONIC DATABASE OR RETRIEVAL SYSTEM WITHOUT THE EXPRESS WRITTEN CONSENT OF THE AMERICAN BAR ASSOCIATION.

May 30, 2024 by Class Action Defense

The Class Action Weekly Wire – Episode 57: Key Arbitration Developments In Class Action Litigation

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and special counsels Eden Anderson and Rebecca Bjork with their discussion of significant arbitration rulings in the class action space.

Episode Transcript

Jerry Maatman: Thank you. Loyal blog readers and listeners for joining our weekly Podcast series. The Class Action Weekly Wire. My name is Jerry Maatman, and I’m a partner at Duane Morris and joining me today are my colleagues, Eden Anderson and Rebecca Bjork. Welcome.

Eden Anderson: Great to be here, Jerry.

Rebecca Bjork: Thanks, Jerry.

Jerry: Today, we wanted to discuss trends and important rulings in the area of arbitration, and specifically where named plaintiffs in class actions are signatories to arbitration agreements that contain class action waivers. What were some of the most significant developments in this space in calendar year 2023?

Eden: Well, while not a class action case, a big development in related PAGA litigation occurred out here in California in 2023. After the U.S. Supreme Court’s decision in Viking River Cruises, there was an open question in California as to whether a PAGA plaintiff whose individual claims are compelled to arbitration retain standing to still pursue their non-individual claims in court, and the California Supreme Court answered that question in the Adolph v. Uber Technologies case. And unfortunately, the answer was not a good outcome for employers.

The California Supreme Court held that PAGA plaintiffs do have standing to pursue non-individual claims in court, even if their individual claims are in arbitration. And as to logistics, the court clarified a few things. First, even though individual PAGA claims may be pending in arbitration and non-individual PAGA claims pending in court, the claims all remain one action, and the court action can be stayed pending the completion of arbitration. And as a practical matter, that’s what we’re seeing happen. And then, second, if the plaintiff loses an arbitration at that juncture, the plaintiff clearly no longer has standing to maintain non-individual PAGA claims. And third, if the plaintiff prevails in arbitration or settles their individual claims, they continue to possess standing to return to court, to pursue non-individual PAGA claims on behalf of others.

Jerry: Thanks, Eden. That sure underscores how vitally important it is for employers given the Adolph ruling to conduct an early assessment as to the value and viability of the named plaintiff’s claim as opposed to running the gauntlet, trying that individual arbitration, losing on at least one claim, and then having the plaintiffs’ lawyer resurrect a representative action and then corral and bring in all the other workers at issue in the case. What are some of the strategies to avoid that result in light of both Viking River and the Adolph decisions?

Eden: Well, but Jerry, as we thought might see happen, some plaintiffs have been alleging that they are aggrieved employees but then disclaiming individual relief trying to avoid arbitration through that pleading tactic. And there’s a recent decision from the California Court of Appeal, Balderas v. Fresh Start Harvesting, that plaintiffs are relying upon in support of that tactic the plaintiff there alleged that she was “not suing in an individual capacity” and, although the trial court felt the plaintiff lacked standing because she wasn’t seeking individual relief, the Court of Appeal disagreed and allowed the case to proceed in court. The Balderas decision was initially unpublished, non-citable, but the plaintiffs’ bar pushed for it to become a published, citable decision. Of course, from the defense perspective this pleading tactic raises some ethical concerns, because you have a plaintiff who is giving up any individual monetary recovery for themselves purely as a forum selection strategy that ends up only benefiting other people including their counsel.

Jerry: Rebecca, are there any other notable decisions in this array of cases from 2023?.

Rebecca: Oh, definitely. The Ninth Circuit also issued an important decision in Chamber Of Commerce Of The United States Of America v. Bonta, et al., which held that California Assembly Bill, also known as AB 51 – which is a statute that attempted to criminalize employers’ use of mandatory arbitration agreements – is preempted by the FAA. In that case, the Ninth Circuit affirmed a preliminary injunction prohibiting California from enforcing AB 51. On January 1, 2024, following a remand in the case, the district court entered a permanent injunction enjoining the State from enforcing the Labor and Government Code sections enacted as a part of AB 51, and the court also awarded the plaintiffs as prevailing parties $822,496. The district court’s order brings finality, judgment, and ultimate success to a strong coalition of employer interests that banded together to challenge the State’s attempt to criminalize the use of mandatory arbitration agreements.

Jerry: Well, that was a welcome ruling from the Ninth Circuit for employers, especially employers that utilize workplace arbitration agreements with class action waivers on a 50-state basis. Our Duane Morris Class Action Review kept track statistically in our database about all arbitration rulings last year, and it showed that 66% of the time, two-thirds of the time, employers were successful in winning motions to compel arbitration, and in the instances where they were not – about one third of the time – it wasn’t so much that there was something defective about the arbitration agreement, it’s that the employer couldn’t demonstrate that the employee had signed off on it, that the onboarding program was such that it couldn’t be proved, they couldn’t find the signature, couldn’t find the electronic trail, that would demonstrate that the employee actually signed off and agreed to the arbitration program. So it seems like the defense is very viable. The Ninth Circuit cleared one of the impediments to doing so. What do you see, as 2024 has now begun, some of the key arbitration decisions in this calendar year?

Eden: Yeah, Jerry, there have been, several significant rulings from the U.S. Supreme Court just in the last month. Last week the court issued its decision in Coinbase v. Suski, which held that where parties have agreed to two contracts – one sending arbitrability disputes to arbitration, and the other sending arbitrability disputes to the courts – that a judge (and not an arbitrator) must decide which of the two contracts governs. So, if a company rolls out successive contracts containing inconsistent terms regarding the forum for dispute resolution, a court will decide which of the two contracts applies. Companies with arbitration program should take heed of the Coinbase decision, and make sure that the wording of later issued contracts does not impair previously existing contractual rights to compel disputes to arbitration.

Rebecca: And the U.S. Supreme Court also issued a unanimous decision on May 16 of this year in Forrest v. Spizzirri, holding that when a district court determines that the claims in a lawsuit are arbitrable and a party has requested a stay of litigation, the district court does not have the discretion to dismiss the lawsuit instead. And this this decision resolved a split amongst the federal circuit courts over whether Section 3 of the FAA requires a stay in such circumstances by use of the word “shall” in that provision. The Supreme Court reasoned very clearly that established canons of statutory interpretation, as well as the structure and the purpose of the FAA, compelled the result in that case.

And, very importantly, on April 12, 2024, the U.S. Supreme Court issued a decision in Bissonnette v. LePage Bakeries Park St., LLC. In that case, they held that the application of the transportation worker exemption in the FAA turns upon the work performed by the plaintiff and not the employer’s industry. The Supreme Court made clear that this work-focused test should not bring within the exemption large swaths of workers who, you know, in some manner engage in products that happen to be within the flow of commerce. But instead, the Supreme Court clarified that the worker at issue must play a “direct” and a “necessary” role in the free flow of goods across state borders for the exemption to apply.

Jerry: Certainly seems that the U.S. Supreme Court is a big supporter of arbitration, especially in the class action space, and is trying to clarify things rather than to muddle them. What do you see coming down the track in 2024 in this space?

Eden: Yeah, Jerry, on the PAGA front we’ll likely continue to see plaintiffs disclaiming individual relief in an attempt to avoid arbitration. And in November, Californians will have the opportunity to vote on an initiative that aims to replace PAGA with the new law, the Fair Pay and Employer Accountability Act (“FPEAA”). And the new law, if passed, it will increase penalties for violations. But, on the other hand, it won’t provide for attorneys’ fees recovery, which, as you know, is a driving force behind the flood of PAGA cases that we see. And on the class action front, the future viability of the arbitration defense remains an open question as advocacy groups, government regulators, and political figures push for a ban on class action waivers in arbitration and to carve out categories of claims from arbitration altogether.

Jerry: Well, thank you both very much for this thought leadership and analysis of what we’re seeing. Harkens back to the presidential election from four years ago where actually the viability of workplace arbitration agreements surfaced in the presidential debates. So be interested to see if that occurs in this go around this particular summer. Well, thank you both, and thank you loyal blog readers and listeners for tuning into this week’s edition of the Class Action Weekly Wire.

Eden: Thanks. Jerry. Thanks, listeners.

Rebecca: Thank you.

May 30, 2024 by Class Action Defense

Alabama Federal Court Rules That Attorneys’ Misleading Communication Undermined The Integrity Of Class Action Plumbing Settlement

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Zachary J. McCormack

Duane Morris Takeaways: On May 23, 2024, in Braswell, et al. v. Bow Plumbing Group, Inc., No. 21-CV-00025, 2024 U.S. Dist. LEXIS 92478 (M.D. Ala. May 23, 2024), Judge Emily C. Marks of the U.S. District Court for the Middle District of Alabama granted Plaintiffs’ Emergency Motion for Curative Action to the extent that: (1) the Court struck 319 requests for exclusion (or “opt-outs”) submitted by individuals seeking to opt-out of a class-wide settlement; (2) the Court re-opened the opt-out and objection period for these 319 class members; and (3) the Court authorized issuance of a second curative notice and request for exclusion form to the 319 class members. Judge Marks tossed out the 319 “opt-outs” and partially reopened the objection period in an attempt to protect the due process rights of the affected class members. The Court took this action because it found that outside attorneys repeatedly misled the class members regarding the pending $8.025 million settlement, which lead to the numerous exclusion requests.

The Court found that two attorneys, who represent the same plaintiffs in separate but related class actions against the same defendant, Bow Plumbing Group, Inc., repeatedly contacted eligible class members to urge them to opt out of the settlement. The Court’s order not only provides guidance regarding the due process rights of class members, but also demonstrates the importance of effective and accurate attorney-client communications in the context of Rule 23.

Case Background

Bow Plumbing Group, Inc. produces drainage and pressure plumbing products in all the major plastic materials, including PEX tubing. On January 13, 2021, plaintiffs filed a class action alleging defects in Bow’s PEX tubing, which was installed in the homes of plaintiffs and the class members. Id. at *3. The parties eventually settled the case on a class-wide basis, and on February 28, 2024, the Court preliminarily approved the parties’ proposed $8.025 million settlement, provisionally certified the settlement class, and directed notice to the settlement class. Id. Shortly after, in March 2024, Attorneys Jay Aughtman and Kenneth Mendelsohn sent emails to a “blind-copied” list of their clients, which contained misleading or inaccurate statements regarding the proposed class action settlement and associated proceedings in this case. Id. Specifically, the emails contained misleading deadlines, misinformation regarding the terms of the settlement, an inaccurate statement that a California-based administrator, who was paid for from the settlement, would determine class members’ individual eligibility to receive any funds, and an incorrect suggestion that it could be unethical for plaintiffs’ counsel to communicate with presumptive class members. Id. at *4.

In response, on April 4, 2024, the Court determined that these emails “materially interfere[ed] with the Court’s order to effectuate a notice plan which fairly, accurately, and reasonably informs the settlement class members of the proposed settlement terms and associated procedures to resolve their claims.” Id. The Court further pointed out that this misinformation put final resolution of the case in jeopardy and risked class members to opt out without the benefit of accurate and complete information. Id.

On April 9, 2024 — within days of the Court’s order — the same attorneys sent another email to their clients stating: “Bow’s defense counsel and the class action attorneys are making rigorous efforts to delay your individual claims that we continue to pursue for you.” Id. The Court found the April 9, 2024 email falsely portrayed its efforts to rectify Attorneys Aughtman and Mendelsohn’s misleading communications as unnecessarily delaying their clients’ individual claims. Id. Finally, on May 7, 2024, the attorneys sent another email suggesting that class members should not speak with class counsel, despite the Court’s April 4 O\order expressly observing that such communications are permissible. Id. at *5. Presumably as a result of the attorneys’ misleading communication, the parties received, through the Court-appointed settlement administrator, a total of 319 requests for exclusion. Id.

The Court’s Decision

The Court held that the attorneys undermined the integrity of the class settlement process by providing incomplete, misleading, and coercive information to potential class members. Id. at *7. Based on these communications, as well as the fact that many of the requests for exclusion were signed before the Court’s curative notice or before the Court-approved notice of the settlement was even issued, the Court was concerned that a significant percentage of these requests for exclusion were caused, in whole or in part, by the inaccurate or incomplete information disseminated by the attorneys. Id. Therefore, to safeguard the integrity of Rule 23, the class members’ due process rights, and the administration of justice, the Court ordered corrective measures to ascertain whether the 319 “opt-outs” are aware of the terms of the settlement, have been adequately informed, and have been provided a sufficient, uncoerced opportunity to decide whether they wish to remain in the class. Id. at *8.

Rule 23 “requires that class members be given information reasonably necessary for them to make a decision.” Id. at *9. The Court reasoned that, under Rule 23(c)(2)(B) it has a responsibility to give class members “the best notice that is practicable under the circumstances.” Id. The Court reasoned that, since it was over two months since the affected class members first learned about the settlement, a shortened opt-out period is both practical and reasonable. Id. Accordingly, the settlement administrator was given seven days to send out the curative letter and renewed request for exclusion forms to the 319 presumptive class members, and they were given 29 days to respond, with a new deadline of June 21. Id. at *10.

Implications Of The Decision

This order serves as a cautionary reminder of the potential repercussions for providing incomplete or inaccurate information to clients. Further, it depicts the consequences of subverting a class action settlement deal.

Rule 23 provides courts with a responsibility to ensure class members have information necessary to decide whether to opt-out of litigation. Corporate counsel should take note of the Court’s interpretation of Rule 23 to be more equipped to effectively handle class action litigation, and continue to monitor this space for future developments.

May 28, 2024 by Class Action Defense

California Court Of Appeal Finds California Law Imposing Forfeiture Of Arbitration Rights For Late Payment Of Arbitration Fees Is Preempted By The FAA

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

Duane Morris Takeaways: On May 22, 2024, the California Court of Appeal held in Hernandez v. Sohnen Enterprises, Inc., 2024 WL 2313710 (Cal. App. May 22, 2024), that the Federal Arbitration Act (“FAA”) preempts the California Arbitration Act’s provisions that impose forfeiture of the right to arbitration for late payment of arbitration fees. Although employers should continue to closely monitor and fully adhere to arbitration fee payment deadlines, the Hernandez decision recognizes that mistakes can occur and should not result in the overly harsh penalty of forfeiture of the arbitral forum. The decision creates a split of authority within the California Courts of Appeal that may ultimately need to be resolved by the California Supreme Court.

Case Background

After Hernandez initially filed various claims against her employer in court, the parties stipulated to move the claims into arbitration and to stay the court case. The applicable arbitration agreement provided that it was governed by the FAA and that the Federal Rules of Civil Procedure (“FRCP”) would apply in arbitration. After Hernandez’s demand was filed in arbitration, JAMS requested payment from the employer of its share of the filing fees. The employer paid those fees one week past the 30-day statutory deadline of Section 1281.97 of the California Code of Civil Procedure (“Section 1281.97”). Hernandez then filed a motion to withdraw from arbitration and to lift the stay of the court case.

The trial court granted the motion. It concluded that the employer’s late payment of arbitration fees was a material breach of the arbitration agreement. The court also imposed monetary sanctions against the employer. The employer appealed on the basis that the arbitration agreement was governed by the FAA and that the FAA preempted Section 1281.97.

The Court Of Appeal’s Decision

The Court of Appeal reversed. It held that, because the parties agreed that the FAA and FRCP would apply to the arbitration agreement and in arbitration, the procedures of the California Arbitration Act, including Section 1281.97’s 30-day arbitration fee payment deadline, did not apply. Additionally, the Court of Appeal held that, even if Section 1281.97 applied, it was preempted by the FAA.

Under the FAA and its “equal treatment” principle, arbitration agreements must be treated the same as any other contract and can only be invalidated based on generally applicable contract defenses. The Court of Appeal held that Section 1281.97 violated this equal treatment principle because it mandates a finding of material breach (and resulting waiver of the right to arbitration for late payment of arbitration fees) that would not apply generally to all contracts. The Court of Appeal noted that, ordinarily, a party to a contract can argue substantial compliance, but Section 1281.97 precludes such an argument because it mandates strict adherence to fee payment deadlines. Additionally, the Court of Appeal found that Section 1281.97 frustrates the FAA’s objective of cheaper, more efficient resolution of disputes by increasing the overall cost of litigation and wasting resources already invested in arbitration.

Implications Of The Decision

The Hernandez decision marks the first time the California Court of Appeal has held that Section 1281.97 is preempted by the FAA. The decision creates a split in authority amongst the California Courts of Appeal. Other appellate courts in California have concluded that Section 1281.97 promotes the goals of the FAA because, in requiring prompt payment of arbitration fees, arbitrations can proceed without delay. Employers must continue to closely monitor arbitration fee payment deadlines to ensure timely payment. However, if a mistake happens, the Hernandez case may, if followed by trial courts, provide relief so long as the applicable arbitration agreement makes clear that the FAA and federal law, and not the California Arbitration Act or California law, govern.

May 28, 2024 by Class Action Defense

The Duane Morris Class Action Review – 2024 Receives Major Accolades From Readers

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

Duane Morris Takeaway: In its review of the Duane Morris Class Action Review – 2024, EPLiC Magazine called it the “the Bible” on class action litigation and an essential desk reference for business executives, corporate counsel, and human resources professionals.

We are humbled and honored by the recent review of the Duane Morris Class Action Review – 2024 by Employment Practices Liability Consultant Magazine (“EPLiC”) – the review is here.

EPLiC said that “The Review must-have resource for in-depth analysis of class actions in general and workplace litigation in particular.”

EPLiC continued that “The Duane Morris Class Action Review analyzes class action trends, decisions, and settlements in all areas impacting corporate America and provides insight as to what companies and corporate counsel can expect to see in 2023 in terms of filings by the plaintiffs’ class action bar and governmental enforcement agencies likes the Equal Employment Opportunity Commission (EEOC) and the Department of Labor (DOL).”

So how do we do it?

The answer is pretty simple – we live, eat, and breathe class action law 24/7/365.

Every day, morning, and evening, we check the previous day’s filings of class action rulings relative to antitrust class actions, appeals in class actions, arbitration issues in class actions, Class Action Fairness Act issues in class actions, civil rights class actions, consumer fraud class actions, data breach class actions, EEOC-initiated litigation, employment discrimination class actions, Employee Retirement Income Security Act class actions, Fair Credit Reporting Act class actions, wage & hour class actions, labor class actions, privacy class actions, procedural issues in class actions, product liability & mass tort class actions, Racketeer Influenced and Corrupt Organization Act class actions, securities fraud class actions, settlement issues in class actions, state court class actions, Telephone Consumer Protection Act class actions, and Worker Adjustment and Retraining Act class actions. The Review also has focused appendices on significant sanctions in class actions, the largest attorneys’ fee awards, major settlements across all areas of litigation, the Illinois Biometric Information Privacy Act and the California Private Attorneys General Act.

We conduct due diligence reviews on a national basis for all of these areas, in both federal courts and in the courts of all 50 states. Then we read and analyze every ruling on Rule 23 certification motions and subsidiary issues throughout federal and state trial and appellate courts. The information is organized in our customized database, which is used to provide the Review’s one-of-a-kind analysis and commentary.

The result is a compendium of class action law unlike any other. Thanks for the kudos EPLiC – we sincerely appreciate it!

We look forward to providing the 2025 Review to all of our loyal readers in early January. In the meantime, check out our first-ever 2024 1st Quarter Class Action Settlement Review blog post here!

May 24, 2024 by Class Action Defense

U.S. Supreme Court Holds That Judges, And Not Arbitrators, Must Decide Whether Contracting Parties Agreed To Delegate Arbitrability Issues To An Arbitrator

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

Duane Morris Takeaways: On May 23, 2024, the U.S. Supreme Court issued its decision in Coinbase, Inc. v. Suski, Case No. 23-3 (2024). The Supreme Court held that, where parties have agreed to two contracts — one sending arbitrability disputes to arbitration, and the other sending arbitrability disputes to the courts — a judge (and not an arbitrator) must decide which contract governs. Thus, if a company rolls out successive contracts containing inconsistent terms regarding the forum for dispute resolution, a court will decide which of the two contracts applies. Companies with arbitration programs should take heed of the decision, and make sure that the wording of later issued contracts do not impair previously existing contractual rights to compel disputes to arbitration.

Case Background

Coinbase operates a cryptocurrency exchange platform where users can buy and sell cryptocurrency. Coinbase offered a sweepstakes that users could enter for a chance to win cryptocurrency. In connection with the sweepstakes, users filed a class action complaint alleging that the sweepstakes violated various California consumer protection statues.

Citing an arbitration clause in the User Agreement, Coinbase moved to compel arbitration and to dismiss the class claims based on a class action waiver contained therein. The arbitration clause in the User Agreement included a delegation clause and, per that provision, an arbitrator was to decide whether a given dispute was arbitrable. The users argued that the court, and not an arbitrator, should decide the arbitrability issue.

In support, the users cited a second contract — the Official Rules — they had agreed to in connection with the sweepstakes. In contrast to the earlier executed User Agreement, the Official Rules contained a forum selection clause providing that all disputes related to the sweepstakes had to be decided in California courts. The users also argued that the Official Rules superseded the User Agreement and its arbitration and class action waiver provision. Coinbase responded that the delegation clause in the User Agreement was meant to govern all agreements moving forward and that the issue of arbitrability should be left in the hands of an arbitrator, and not the court.

The district court denied Coinbase’s motion to compel arbitration and the Ninth Circuit affirmed. Both reasoned that deciding which contract governed was a question for the court, and not an arbitrator, to answer; that the User Agreement’s arbitration provision conflicted with the forum selection clause in the Official Rules; and that the Official Rules superseded the User Agreement.

The U.S. Supreme Court then granted review to answer the question of who — a judge or an arbitrator — should decide whether a subsequent contract supersedes an earlier arbitration agreement that contains a delegation clause.

The Supreme Court’s Decision

The Supreme Court held that, where parties have agreed to two contracts — one sending arbitrability disputes to arbitration, and the other sending arbitrability disputes to the courts — a court must decide which contract governs. By contrast, in cases where only one contract is at issue, and that contract contains an arbitration clause with a delegation provision, courts must send all arbitrability disputes to arbitration, absent a successful challenge to the delegation clause.

Thus, the Supreme Court determined that it was correct for the district court (and the Ninth Circuit) to have determined which contract governed the claims concerning the sweepstakes. Although Coinbase sought to challenge the Ninth Circuit’s ruling that the Official Rules superseded the User Agreement, the Supreme Court declined to consider that issue.

Implications Of The Decision

The Suski decision serves as a cautionary reminder to companies that roll-out successive contracts that bear on the forum for dispute resolution. A court’s task is to determine what the parties’ agreement was or if a contract was not formed. If an earlier contract contains an arbitration clause with a delegation provision, but a later contract does not and refers disputes to the courts, it will be up to a judge to decide which contract governs.

Anytime a company issues successive contracts addressing topics such as the forum for disputes, it is important to ensure there is consistency in the forum selected or else the right to arbitration and dismissal of class claims (based on a class action waiver) may be lost.