Class Action Defense

July 14, 2023 by Class Action Defense

Not Again – No More Notices: North Carolina Federal Court Denies Conditional Certification In Duplicative FLSA Collective Action

By Gerald L. Maatman, Jr., Alex W. Karasik and Shaina Wolfe

Duane Morris Takeaways: In Emmanuel Jean-Francois et al. v. Smithfield Foods, Inc., et al., No. 7:22-CV-63, 2023 U.S. Dist. LEXIS 118136 (E.D.N.C. July 10, 2023), a federal district court in North Carolina denied plaintiffs’ motion for conditional certification of an FLSA collective action, holding that the collective action they sought to certify was duplicative to the conditionally certified collective actions in two other pending cases.

This decision is well worth a read for companies who are confronted with numerous collective action lawsuits containing similar alleged violations of wage and hour laws.

Case Background

Three employees (“Plaintiffs”) sued their employer, Smithfield Fresh Meats Corp. (“Smithfield”), and three of its sister companies (collectively “Defendants”) for violations of the Fair Labor Standards Act (“FLSA”), and specifically, for failing to include a “responsibility bonus” in their pay when calculating overtime. Id. at 1. During COVID-19, Plaintiffs received a “responsibility bonus,” which entitled them, as hourly employees, to a bonus of “$5 per hour for all regular hours worked up to and including forty in a workweek,” between April 1, 2020 and October 31, 2020. Id. at 3. Plaintiffs alleged that Defendants underpaid them for overtime pay during the period between April 1, 2020 and October 31, 2020. Id.

Plaintiffs moved to certify a collective action of a similarly situated group of 8,000 employees who were not properly compensated by Defendants for overtime work performed. Id. at 1. Defendants opposed the motion for conditional certification and argued, among other things, that the proposed collective action could not be certified because it was duplicative to two other cases entitled Canas and Winking. Id. at 2. The parties in Canas and Winking had recently reached agreements to settle the FLSA claims concerning the same responsibility bonus for employees and notices to opt-in plaintiffs who opted into the settlement had already been distributed. Id. at 2-3.

The Court’s Decision

The Court agreed with Defendants and denied Plaintiffs’ motion for conditional certification. Id. at 11. Significantly, the Court found that the Canas action encompassed claims identical to the claims Plaintiffs alleged in Jean-Francois. Id. at 11.

The Court explained that, “[i]n Canas, the collective [action members] settled claims against Smithfield (including employees in North Carolina) based on the same facts and during the same time period.” Id. In Canas v. Smithfield Packaged Meats Corp., No. 1:20-CV-4937 (N.D. Ill.), some employees brought a collective action lawsuit for violations of the FLSA against Smithfield, one of its sister companies, and another company. Id. at 2. On September 13, 2021, the judge in Canas approved a settlement between “the FLSA settlement class plaintiffs who opted into the settlement” and the two Smithfield companies concerning the responsibility bonus. Id. at 2–3. The settlement included employees who worked in North Carolina. Id. at 3.

The Court further explained that Plaintiffs were already part of the collective action that received notice as part of the Canas collective action, and that the scope of the Canas collective action included every potential opt-in plaintiff in the current proposed collective action at issue in Plaintiffs’ motion. Id. at 9-10. Instead of certifying another collective action, the Court opined that Plaintiffs’ remedy was “to proceed with their action as an individual action or request to be paid now what they would have received had they submitted a claim for from the Canas reserve fund.” Id. at 10-11. For these reasons, the Court denied Plaintiffs’ motion for conditional certification.

Implications For Employers

In FLSA collective actions, it is not uncommon for a series of cascading lawsuits to be filed against the same company, especially in scenarios when employees in scattered locations may independently retain their own counsel. However, it can be distracting for a business to have its workforce receive multiple notifications providing opportunities to join lawsuits against their employer, especially when the lawsuits may appear to be similar. This is an excellent ruling for employers to use when they are confronted with multiple, duplicative FLSA collection action lawsuits. Accordingly, businesses involved in wage and hour litigation would be wise to keep this ruling tucked away.

July 14, 2023 by Class Action Defense

Eleventh Circuit Requests Refined Class Definition For Data Breach Class Action

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

Duane Morris Takeaways: In Steinmetz et al. v. Brinker International, Inc., No. 21-13146, 2023 U.S. App. LEXIS 17539 (11th Cir. July 11, 2023), the Eleventh Circuit vacated the district court’s order certifying a nationwide class and California-only class in a data breach case. In so doing, it remanded the case with instructions to the district court to define the phrase “who had their data accessed by cybercriminals” and to analyze the viability of the California class.

For employers facing data breach claims in class actions, this decision is instructive in terms of what reviewing courts consider in certifying a class, especially when class definition terms or phrases are broad.

Case Background

Defendant Brinker International, Inc, owner of Chili’s restaurants, faced a cyber-attack between March and April 2018, in which customers’ credit and debit cards were compromised. Id. at 2. Hackers targeted Chili’s restaurant systems and stole both customer data and personally identifiable information, and posted that information on an online market place for stolen payment data. Id. at 2-3. Plaintiffs alleged that 4.5 million cards were accessed by hackers. Id. at 3.

The three named plaintiffs – Shenika Theus, a Texas resident, Michael Franklin, a California resident, and Eric Steinmetz, a Nevada resident – alleged they used their cards at Chili’s restaurants between March and April in their respective states. Id. at 3-4. After their visits, Theus and Franklin had unauthorized charges on their cards requiring them to cancel their cards, Steinmetz did not experience fraudulent charges. Id. at 3-4.

Plaintiffs moved to certify two classes, including a nationwide class and California statewide class, seeking both injunctive and monetary relief. Id. at 4. The district court certified the nationwide class for negligence claims and a separate California class under the state’s unfair competition laws. Id. at 5. Brinker appealed the district court’s class certification orders. Id.

The Eleventh Circuit’s Decision

The Eleventh Circuit held that Plaintiffs alleged a concrete injury that was sufficient to establish Article III standing. Id. at 10. Plaintiffs showed both a present injury – by alleging their personal information was taken by hackers and put on the dark web – and a substantial risk of future misuse through future misuse of information associated with the hacked credit card. Id. at 9-10.

The Eleventh Circuit, however, vacated the district court’s order and found Franklin and Steinmetz could not meet the traceability requirement for standing. Id. at 11. Franklin alleged two visits outside the “at-risk timeframe” when Chili’s was compromised in the data breach and therefore his injury was not fairly traceable. Id. Steinmetz similarly stated in responses to interrogatories and his deposition that he visited Chili’s on a date outside the affected period and could not “fairly trace” any alleged injury to Brinker’s action. Id. at 12-13. For these reasons, the Eleventh Circuit opined that Theus did meet traceability for standing purposes. Id. at 13.

As to the class definitions at issue in the litigation, the Eleventh Circuit ruled that the district court’s phrase “data accessed by cybercriminals” in both class definitions was too broad and limited the class to “cases of fraudulent charges or posting of credit information on the dark web.” Id. at 15. The Eleventh Circuit determined that the district could need to refine the class definition to include those two categories only and then conduct a new predominance analysis to include uninjured individuals who simply had their data accessed. As a result of the problems with the class definition, the Eleventh Circuit remanded the case. Id. at 15-16. The Eleventh Circuit also remanded the case in light of Franklin’s lack of standing to determine the viability of the California-based class. Id. at 16.

Implications For Employers

Employers confronted with class certification motions in data breach lawsuits should take note that the Eleventh Circuit relied on the broad phrase “data accessed by cybercriminals” in remanding the district court’s order.

Further, from a practical standpoint, employers should carefully evaluate district court’s class definitions for overbroad terms or phrases when preparing an appeal.

July 14, 2023July 14, 2023 by Class Action Defense

Ohio Federal Court Denies Conditional Certification In An Early Application Of The Sixth Circuit’s “Strong-Likelihood” Standard, Signaling A New Normal For Wage & Hour Lawsuits

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

Duane Morris Takeaways: In Hutt v. Greenix Pest Control, LLC, et al., No. 2:20-CV-1108 (S.D. Ohio July 12, 2023), U.S. District Judge Sarah D. Morrison denied plaintiff’s motion for court-supervised notice to potential opt-in plaintiffs under 29 U.S.C. § 216(b) in one of the first applications of the Sixth Circuit’s new standard for ruling on such motions in Clark v. A&L Homecare and Training Center, LLC, 68 F.4th 1003 (6th Cir. 2023).

On May 19, 2023, the Sixth Circuit replaced the long-standing lenient test for facilitating notice under the Fair Labor Standards Act (FLSA) with a more rigorous test akin to the standard used to obtain a preliminary injunction. Whereas under the prior framework a plaintiff need only make a “modest factual showing” that other employees are “similarly situated,” Clark requires plaintiffs to demonstrate a “strong likelihood” that “similarly situated” employees exist to warrant notifying other potential plaintiffs about the lawsuit.

The Court’s opinion in Hutt sends a clear message that the “strong likelihood” evidentiary standard has teeth. The ruling is a boon for employers defending FLSA claims on behalf of multiple employees.

Case Background

In Hutt, the plaintiff, a former pest control technician, filed a Complaint against his former employer, Greenix, on February 28, 2020. The plaintiff sought to recover unpaid minimum wages and overtime wages allegedly owed to him under the FLSA. He alleged that Greenix failed to pay him an overtime rate of pay for overtime hours worked, did not pay for certain tasks performed “off the clock” and took improper deductions from his pay. In his Complaint, the plaintiff alleged that approximately 186 other pest control technicians were subject to the same wage violations as he had experienced.

On February 27, 2022, the plaintiff filed a motion for conditional certification. The plaintiff sought to issue notice to all pest control technicians employed at any of Greenix’s four facilities in Ohio during the three-year period before he filed the Complaint. In support of the motion, the plaintiff relied on his own declaration, various pleadings, and Greenix’s responses to written discovery requests. Greenix opposed the motion. Although the motion was fully briefed, the Court held the motion in abeyance pending the Sixth Circuit’s ruling in Clark.

Following the Sixth Circuit’s ruling in Clark, the Court ordered the parties in Hutt to brief the issue of whether the plaintiff could satisfy the new, stricter standard to facilitate notice under 29 U.S.C. § 216(b). In the plaintiff’s supplemental brief, he argued that he had submitted enough evidence to satisfy the new standard. The plaintiff emphasized Greenix’s prior statement in a discovery response that each of its Ohio facilities had consistent pay policies. In its supplemental brief, Greenix asserted that its statement did not mean that all putative class members perform the same job duties or work the same schedules, among other arguments.

The Court’s Decision

The Court held that the plaintiff fell short of the evidentiary showing necessary to demonstrate a “strong likelihood” that there is a group of potential plaintiff employees “similarly situated” to him under the standard in Clark.

First, the Court explained the FLSA is silent as to the procedure for a plaintiff to advance claims with others who are “similarly situated.” In the absence of statutory guidance, courts have exercised their discretion to set the procedure governing collective treatment of FLSA claims.

For this reason, the Court analyzed the two-step standard announced in Clark. The first step evaluates whether the plaintiff has shown a “strong likelihood” that other employees are similarly-situated to the plaintiff. Overcoming the first step requires a plaintiff to submit evidence that the plaintiff’s FLSA injury “resulted from a corporate-wide decision” to violate the FLSA, not human error or a rogue manager.

Under the second step, the plaintiff must prove, by a preponderance of the evidence, that the employees who have opted to join the lawsuit are similarly situated to the plaintiff. If the plaintiff makes that showing, the opt-in plaintiffs become actual parties to the lawsuit and proceed with the named plaintiff to trial. As the Court reasoned, the Sixth Circuit’s opinion in Clark left the second step of the analysis relatively unchanged from the prior standard.

In assessing the plaintiff’s status as similarly-situated to others, the Court opined that no single factor is determinative. Among the relevant factors are whether the named plaintiff performed the same tasks and was subject to the same policies as the potential other plaintiffs, whether the potential other plaintiffs are subject to individualized defenses, and whether other potential plaintiffs have submitted affidavits.

In applying the Clark standard, the Court found insufficient the plaintiff’s reliance on hearsay statements in his own declaration, including what co-workers allegedly told him, to argue that Greenix had company-wide pay practices. Further, the plaintiff put forth no evidence of the company’s actual compensation plan. The Court explained that even if the plaintiff proved that Greenix has a company-wide compensation plan, that fact alone would not prove company-wide FLSA violations. In essence, the Clark standard required the plaintiff to show more.

Therefore, the Court denied the plaintiff’s motion seeking court-supervised notice to potential plaintiffs pursuant to 29 U.S.C. § 216(b) of the FLSA.

Implications For Employers

The ruling in Hutt has persuasive value to other district courts in Ohio, Tennessee, Michigan and Kentucky. Gone are the days of plaintiffs in the Sixth Circuit winning the right to send notice to dozens, hundreds, or even thousands of other employees on hearsay evidence alone. The Court roundly rejected the notion that a sole declaration from the named plaintiff is enough to obtain court-sanctioned notice. It remains to be seen how other courts will apply Hutt to a different set of facts.

Given the emerging trend among federal courts across the country in rejecting the lenient two-step standard, the decision in Hutt is an indicator of a major shift in leverage from plaintiffs to defendants in FLSA litigation.

July 14, 2023July 13, 2023 by Class Action Defense

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

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

Episode Transcript

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

Brandon Spurlock: Great to be here, Jen.

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

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

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

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

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

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

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

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

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

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

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

July 12, 2023 by Class Action Defense

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

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

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

Case Background

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

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

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

The First Circuit’s Decision

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

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

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

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

Implications For Employers

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

July 10, 2023July 20, 2023 by Gerald L. Maatman, Jr.

Ninth Circuit Finds Article III Standing Under The TCPA For Owner Of Registered Phone With Third-Party User

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

Duane Morris Takeaways: On June 30, 2023, in Kristen Hall v. Smosh Dot Com, Inc., DBA Smosh, et al., No. 22-16216 (9th Cir. June 30, 2023), the Ninth Circuit reversed the district court’s dismissal for lack of Article III standing of a class action under the Telephone Consumer Protection Act (the “TCPA”) and remanded the claim for further proceedings. In doing so, the Ninth Circuit held that the owner and subscriber of a phone with a number listed on the Do-Not-Call Registry suffers an injury in fact when unsolicited telemarking calls or texts are sent to the number even if the communications are intended for or solicited by another individual or someone else is using the phone at the time the messages are transmitted. In so holding, the Ninth Circuit established that the receipt of unsolicited phone calls or text messages in violation of the TCPA is a “concrete injury in fact sufficient to confer Article III standing” even if the individual bringing the claim was not the phone’s primary user. As a result, the ruling is required reading for any corporate counsel dealing with TCPA class action litigation.

Case Background

Plaintiff Kristen Hall, a resident of Willis, Texas, was in possession of a cellular phone that was used primarily for residential purposes and, at times, provided to her 13-year old son to use in his free time. Hall, No. 22-16216, at 5-6. Plaintiff placed this number on the National Do-Not-Call Registry in order to avoid invasive and irritating solicitation calls and to protect her son from any potential threats. Id. Plaintiff alleged that she was the owner and subscriber of the cell phone at issue and that she listed its number on the Do-Not-Call Registry. Id. at 9.

On or around November 3, 2019, Defendants – who are digital content creators producing “sketch comedy” for an adolescent audience and selling merchandise that relates to their digital content – obtained the personal information for Plaintiff’s son and sent him at least five text messages between December 25, 2019, and June 29, 2020. Id. These texts specifically solicited business and offered discounts on products offered by Defendant Smosh Dot Com, Inc., which Plaintiff alleged was “irritating, exploitative, and invasive” and “precisely the type of communications she sought to avoid when she registered her number on the Do Not Call [R]egistry.” Id. Plaintiff’s First Amended Complaint alleged that Defendants violated § 227(c) of the Telephone Consumer Protection Act (“TCPA”) by sending text messages to numbers listed on the National Do-Not-Call Registry. Id.

Defendants moved to dismiss the First Amended Complaint for failure to state a claim and for lack of standing. They argued that Plaintiff lacked Article III standing because she failed to plead that she was the user of the phone or actually received any of the soliciting text messages from Defendants. Id. at 6-7. Specifically, Defendants argued that because she provided the phone to her son, Plaintiff was not the actual user of the phone or the actual recipient of the messages and, therefore, did not suffer an injury and was instead attempting to assert the legal right of a third party. Id. at 9-10. The district court granted the motion to dismiss on the basis that Plaintiff did not have Article III standing merely because she was the subscriber/owner of the phone while not addressing any of the merits issues. Id. at 7. Plaintiff appealed this ruling. Id.

The Ninth Circuit’s Ruling

The Ninth Circuit reversed the district court’s ruling.

It held that Plaintiff had Article III standing to bring the claims under the TCPA. The Ninth Circuit noted that it was well established that unsolicited telemarketing phone calls or text messages in violation of the TCPA is a concrete injury in fact that, itself, is enough to confer Article III standing. It cited to Van Patten v. Vertical Fitness Grp., LLC, 847 F.3d 1037, 1043 (holding that “[u]nsolicited telemarketing phone calls or text messages, by their nature, invade the privacy and disturb the solitude of their recipients). Id. at 8. Importantly, the Ninth Circuit made clear that the relevant question for Article III standing is whether Plaintiff suffered a cognizable injury. Id. at 12. The Ninth Circuit reasoned that because a violation of the TCPA is a “concrete injury,” and the Do-Not-Call provisions of the TCPA proscribe unsolicited calls and text messages to phone numbers on the Do-Not-Call Registry, Plaintiff’s allegations that she received unsolicited text messages on a number on the registry were sufficient to confer standing. Id.

To reach this holding, the Ninth Circuit found no precedent that the owner of a cell phone also must be the primary or customary user to be injured by unsolicited phone calls or text messages. Id. at 13. The Ninth Circuit reasoned that requiring a certain level of phone usage to be a prerequisite for standing would go against Congress’ intention of preventing individuals on the Do-Not-Call Registry from receiving unsolicited text messages. Id. The Ninth Circuit also opined that this holding would not prevent other users of the phone from bringing claims, as they may also suffer a concrete injury from an unwanted call or text message. Id.

Importantly, the Ninth Circuit did not address the merits of Plaintiff’s claim, and refused to discuss Defendants’ contention that Plaintiff’s son solicited the text messages by signing up for telecommunications through an online form. Id. Instead, the Ninth Circuit held that, even if Plaintiff’s son solicited the messages, therefore affecting the merits of her claim, Plaintiff still had standing to bring her own claim by the virtue of her status as the subscriber and owner of the phone. Id. at 14. The Ninth Circuit additionally did not address the question of whether a subscriber would have Article III standing to litigate a TCPA claim if he or she authorized a third-party user to provide consent to a telemarketer, leaving that question open for the district court to discuss on remand. Id. at 9.

Key Takeaways

The Ninth Circuit has now established that all that is required for Article III standing under the TCPA is the receipt of unsolicited text messages or phone calls to a number owned or subscribed to by an individual and found on the Do-Not-Call Registry, even if that individual is not the primary user of the phone.

This ruling curtails attacks on the pleadings by TCPA defendants, especially with the language included by the Ninth Circuit that standing is “not exclusive” and numerous subscribers/users can bring TCPA claims. However, with the Ninth Circuit leaving open the question of whether a subscriber would have standing if he or she authorized a third-party user to provide consent to receive telemarketing, companies defending TCPA claims still may have a path forward to attacking standing for subscribers of phones on the Do-Not-Call Registry with third-party users. Until then, companies should be cognizant that even if a phone user solicited communications by signing up for those communications, the phone subscriber will still have standing to bring a claim under the TCPA.

July 7, 2023December 1, 2023 by Gerald L. Maatman, Jr.

Texas Federal Court Finds That The Final DOL 80/20 Rule Is Still In Play…At Least For Now

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

Duane Morris Takeaways: On July 6, 2023, in Restaurant Law Center, et al. v. U.S. Department of Labor, No. 1:21-CV-1106 (W.D. Tex. July 5, 2023) (ECF No. 67), federal district judge Robert Pitman of the U.S. District Court for the Western District of Texas denied the Restaurant Groups’ motion for preliminary injunction as to the new “80/20 Rule” – after being reversed by the Fifth Circuit several months prior – and denied the Restaurant Groups’ motion for summary judgment and granted the Department of Labor’s (“DOL”) motion for summary judgment. Judge Pitman determined that the DOL’s decision to construct and enforce the Final Rule was a permissible construction of the Fair Labor Standards Act (“FLSA”) and is not arbitrary and capricious. ECF 67 at 28. The ruling is nowhere close to the end of this litigation and the service and hospitality industry should pay close attention to what comes next as the Restaurant Law Center will inevitably appeal the district court’s decisions to the Fifth Circuit and as the U.S. Supreme Court has decided to reconsider the authority of agencies during the next term. The next set of decisions will be part of a broader analysis of the rules regarding tip credit, and more generally, the DOL’s authority.

The Final Rule

In late 2021, the DOL revived and revised the 80/20 Rule by providing that employers can utilize the tip credit only so long as 80 percent or more of the work is tip-producing, and not more than 20 percent is “directly supporting work.” See 29 C.F.R. § 531.56. Under the Final Rule, no tip credit can be taken for any non-tipped work. “Tip-producing work” is defined as work the employee performs directly providing services to customers for which the employee receives tips (i.e., taking orders and serving food). “Directly supporting work” is defined as work that is performed by a tipped employee in preparation of or to otherwise assist tip-producing customer service work (i.e., rolling silverware and setting tables). Non-tipped work includes preparing food or cleaning the kitchen, dining room, or bathrooms.

The Final Rule also includes a new requirement that an employer cannot utilize the tip credit when an employee performs more than 30 consecutive minutes of “directly supporting work.” Directly supporting work done in intervals of less than 30 minutes scattered throughout the workday would not invalidate the tip credit, subject to the 80/20 Rule. However, employers must pay minimum wages for “directly supporting work” performed after the lapse of the first 30 continuous minutes.

Procedural Background

In December 2021, the Restaurant Law Center challenged the Final Rule in the U.S. District Court in the Western District of Texas, on the grounds that, among other things, it violated the Fair Labor Standards Act. Restaurant Law Center, No. 1:21-CV-1106 at 4. The Texas federal district court denied the preliminary injunction after finding that the Plaintiffs failed to show that they would suffer irreparable harm absent the preliminary injunction. Id.

On April 28, 2023, the Fifth Circuit reversed the Texas federal district court, finding that the Restaurant Groups “sufficiently showed irreparable harm in unrecoverable compliance costs . . . .” Rest. L. Ctr. v. U.S. DOL, 66 F.4th 593, 595 (5th Cir. 2023). Significantly, the Fifth Circuit noted that that compliance costs would likely be necessary to track the number of minutes worked on nontipped labor and that the new 30-minute rule would impose additional monitoring costs. Id. The Fifth Circuit remanded the case for further proceedings. Id. [Our previous blog post on that ruling is here.]

The Texas Federal District Court’s Decision on Summary Judgment

At the second go-around, the district court had two fully-briefed motions, including: (1) the Restaurant Groups’ motion for preliminary injunction; and (2) the parties’ cross-motions for summary judgment. The district court denied the Restaurant Groups’ motion for summary judgment and granted the DOL’s cross-motion for summary judgment after finding that, contrary to the Restaurant Groups’ assertions, the DOL’s decision to construct and implement the Final Rule was a permissible construction of the FLSA and is not arbitrary and capricious. Id. at 28. In addition, the Texas federal district court denied the Restaurant Groups’ motion for preliminary injunction after finding that the Restaurant Groups did not succeed, and were likely not to succeed, on the merits of the case, that the balance of equities did not tip in the Restaurant Groups’ favor, and that an injunction was not in the public interest. Id.

In determining the Final Rule’s validity, the district court used a two-step framework articulated in Chevron, USA, Inc. v. Natural Resources Def. Council, Inc., 467 U.S. 837 (1984). Id. at 8. Under Chevron, if a statute has a gap that needs to be filled, Congress gave the agency administering the rule, rather than courts, authority to resolve it. Id. The district court found that Chevron deference applied to the case because Congress “delegated authority to the agency generally to make rules carrying the force of law,” and that the Final Rule “was promulgated in the exercise of that authority.” Id. at 10.

The federal district court also analyzed the FLSA’s text, structure and purpose, and legislative history, and found that, contrary to the Restaurant Group’s assertions, the statute was ambiguous. Id. at 17. The district court explained that “Congress has crafted an ambiguous statute and tasked DOL with implementing the ambiguous provisions,” and the Court “must defer to the agency’s regulation so long as it is not arbitrary, capricious, or manifestly contrary to the statute.” Id. at 17. The district judge further found that the Final Rule “accomplishes” the purposes of the FLSA “by adopting a ‘functional test’ to determine when an employee may be considered engaged in a tipped occupation.” Id. at 19.

Significantly, the district court also considered whether the Major Questions Doctrine was triggered, as discussed in West Virginia v. EPA, 142 S. Ct. 2587 (2022). Id. at 24. The district court found that the Major Questions Doctrine was not triggered because an agency action was only considered to be of “vast economic significance” if it requires “billions of dollars in spending.’” Id. at 25. The district court found that the DOL “pointed out that the average annual cost of the Rule in this case is $183.6 million” and explained that this amount was “far less than the billions considered in the cited cases. Id. The district court further opined that the “DOL has been interpreting the tip credit provision of the FLSA, as well as its other provisions, for decades.” Id.

The Texas Federal District Court’s Decision on the Preliminary Injunction

In addition, as instructed by the Fifth Circuit, the district court reconsidered the Restaurant Groups’ Motion for Preliminary Injunction. At the outset, the district court noted that “[a]lthough a failure to show likelihood of success on the merits is grounds alone for denial of a preliminary injunction, the Court will address the two remaining Rule 65 factors pursuant to the Fifth Circuit’s mandate to ‘proceed expeditiously to consider the remaining prongs of the preliminary injunction analysis.’” Id. at 26 (citing Rest. L. Ctr., 66 F.4th at 600). Despite the Fifth Circuit’s finding that Restaurant Groups will suffer irreparable harm because their compliance costs are non-recoverable, Rest. L. Ctr, 66 F.4th at 595, in balancing the equities, the district court essentially found the opposite – – that the Restaurant Groups, again, failed to show irreparable harm from complying with the Final Rule. See id. at 26-27.

Significantly, the Fifth Circuit previously disagreed with the DOL’s assertion that “employers need not engage in ‘minute to minute’ tracking of an employee’s time in order to ensure that they qualify for the tip credit.” Rest. Law Ctr., 66 F.4th at 599 (“No explanation is given (nor can we imagine one) why an employer would not have to track employee minutes to comply with a rule premised on the exact number of consecutive minutes an employee works.”). Contrary to the Fifth Circuit, the district court agreed with the DOL and found that “restaurants must already monitor the amount of time employees spend on non-tipped labor under the 80/20 rule, and the new 30-minute rule does not impose a new form of monitoring.” ECF 67 at 26. In addition, the district court noted that it is not clear that the Rule imposes significantly greater costs than restaurants incurred under the preexisting guidance because the Restaurant Groups failed to “provide an estimate of this additional monitoring.” Id. In essence, contrary to the Fifth Circuit’s Order, the district court, again, “emphasized the weakness of [the Restaurant Groups’] evidence.” Rest. Law Ctr., 66 F.4th at 598 (“For instance, the court found [the Restaurant Groups] claimed ongoing costs “to be overstate[d]” because the rule does not require “the level of detailed monitoring of which [the Restaurant Groups] warn. . . [this point is] meritless”).

Further, the district court explained that eighteen months had passed since the parties filed their briefs on the preliminary injunction, and that the Rule took effect on December 28, 2021 and has remained in place. Id. Without citing to any evidentiary support, the district court noted that “[r]estaurants and DOL have complied with the Rule since that time.” Id. at 27.

Moreover, similar to the district’s court’s first order, which was reversed by the Fifth Circuit, the district court explained “that even if there are ongoing management costs, the most significant compliance costs associated with the Rule were familiarization and adjustment costs, which have now already been incurred, and that granting an emergency motion to rescind the Rule now cannot undo these costs, and may very well force restaurants to incur additional costs adjusting to the policy that takes its place.” Id. Ultimately, the district court found that the Restaurant Groups’ “compliance costs do not outweigh the substantial harm that DOL may endure from essentially starting from scratch on a rule that serves to codify long-standing guidance.” Id.

Thus, the district court found that even if Restaurant Groups showed a likelihood of success on the merits, “neither the balance of equities nor the public interest would support a nationwide preliminary injunction.” Id. at 28.

Implications For The Service & Hospitality Industry

The fight to end and/or limit the Department of Labor’s authority and promulgation of the tip credit rule is far from over. Although the Texas federal district court sent a clear indication that it did not agree with the Fifth Circuit’s decision, and that it would not disturb the Department of Labor’s authority, the service and hospitality industry should be watchful for what has yet to come. The Restaurant Law Center will undoubtedly appeal both of the Texas federal district court’s rulings, and the Fifth Circuit has already indicated that preventing enforcement of the Final Rule may be on the horizon. Moreover, the Supreme Court’s decision to reconsider the Chevron doctrine in Loper Bright Enterprises v. Gina Raimondo, Case No. 22-451 – which will be heard in the next term – to the extent that it narrows or eliminates federal courts’ deference to agencies’ decisions, could substantially impact the agenda the Department of Labor can pursue. The service and hospitality industry should stay tuned for the Fifth Circuit’s rulings in Restaurant Law Center and Supreme Court’s forthcoming ruling Loper Bright Enterprises.

July 7, 2023July 7, 2023 by Class Action Defense

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

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

Episode Transcript

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

July 5, 2023July 5, 2023 by Class Action Defense

New York Federal Court Denies Class Certification In ERISA Lawsuit Involving 8,000 Plans

By Gerald L. Maatman Jr., Jeffrey R. Zohn, and Jesse S. Stavis

Duane Morris Takeaways: On June 27, 2023, Judge J. Paul Oetken of the U.S. District Court for the Southern District of New York denied certification in a putative class action filed under the Employee Retirement Income Security Act (“ERISA”) by a participant in a retirement plan offered by Teachers Insurance and Annuity Association of America (“TIAA”). In Haley v. Teachers Ins. and Annuity Ass’n, No. 17 Civ. 855 (S.D.N.Y. Jun. 27, 2023), the court brought an end to a legal battle that began in 2018 by applying an appellate ruling that held that Rule 23(b)’s predominance requirement obligates courts to consider not only a plaintiff’s allegations, but also a defendant’s affirmative defenses.

The decision is instructive for defendants who are faced with class allegations that purport to target a single policy or practice, but which in fact relate to numerous individual decisions. It should also serve as a reminder that defendants must consider not only the facial validity of a claim, but also the robust defenses available under the ERISA.

Case Background

Melissa Haley, an employee of Washington University in St. Louis, initiated her lawsuit against TIAA in 2018. She sought to represent participants in approximately 8,000 retirement plans that used TIAA’s services to allow members to take out loans against their retirement savings. Haley alleged that TIAA had departed from standard industry practices by retaining interest earned on participants’ collateral as compensation for administering loans. TIAA countered that while the transactions might be facially prohibited under Section 406 of the ERISA, they were permissible because they were covered by several of the defenses provided by Section 408 of the Act. Most significantly, TIAA argued that the transactions were permissible under Section 408(b)(17), which allows a plan to engage in otherwise-prohibited transactions where it pays no more and receives no less than “adequate consideration.”

Judge Oetken initially granted class certification in 2020 under Rule 23(b)(3) in Haley v. Teachers Ins. & Annuity Ass’n of Am., 337 F.R.D. 462 (S.D.N.Y. 2020). However, the Second Circuit vacated the ruling and remanded the case on the grounds that the district court had erred in assessing whether Rule 23’s predominance requirement had been met. See Haley v. Teachers Ins. & Annuity Ass’n of Am., 54 F.4th 115 (2d Cir. 2022). The predominance requirement mandates that plaintiffs demonstrate not only that there are common questions of law or fact in a putative class’ allegations, but also that such questions predominate over questions affecting only individual members. In conducting the predominance analysis, the Second Circuit held that the district court must not only consider a plaintiff’s allegations, but also must analyze a defendant’s defenses. Because the district court had not conducted a predominance analysis with respect to the Section 408(b)(17) defenses, the class certification order could not stand.

Southern District of New York Opinion

On remand, Judge Oetken considered whether both the alleged claims and defenses were “amenable to general, class-wide proof.” Haley, No. 17 Civ. 855, at 4 (citing Langan v. Johnson & Johnson Consumer Cos., 897 F.3d 88, 97 (2d Cir. 2018)). Plaintiff argued that similar issues of law and fact were involved in all of the putative class’ claims, but TIAA countered that evaluating the substantial consideration defense would require the district court to conduct an individualized assessment of how TIAA acted with respect to each of the roughly 8,000 plans involved in the litigation. Judge Oetken ultimately sided with TIAA, holding that “[t]he common issues that Plaintiff identifies as satisfying predominance are insufficient to overcome the individual issues raised by section 408(b)(17).” Id. at 6. Because there were clear differences in fees and plan structures, it would not be possible to arrive at common answers to the decisive question of whether there had been adequate consideration for each transaction.

The district court rejected Plaintiff’s attempt to draw class-wide conclusions from either her own plan’s arrangement or from statistical averages that allegedly showed that plan participants paid an average of 4.66% to receive 1.66% in returns. Allowing the class allegations to proceed based on these averages would constitute an impermissible attempt at “trial by formula,” which the district court held would be prohibited by both Rule 23 and the due process clause. Judge Oetken opined that “[t]he averages are probative of the parameters of the statistical sample, not common traits within it.” Id. at 7. Finally, the district court rejected Plaintiff’s attempt to save the class by dividing it into sub-classes because Plaintiff had failed to raise this argument earlier.

Implications For Defendants

ERISA class actions can be difficult to defend against, as Plaintiffs typically assert that discrete types of alleged plan mismanagement led to common injuries that affected large numbers of participants in similar ways. As a result, ERISA plaintiffs often do not face the same problems in establishing typicality, commonality, and predominance as do plaintiffs in other class actions. Haley is an exception to this rule. Defendant was able to show that the case was not about a single policy, but about numerous individual actions. The decision underscores the importance of probing deeply into a putative class member’s allegations to determine whether they meet the rigorous standards of Rule 23.

In addition, Haley shows just how powerful the affirmative defenses in Section 408 can be. As the district court noted, Section 406 is written so broadly that a plain reading of the section would ban many, if not most, transactions involving service providers like TIAA. However, the broad sweep of Section 406 is explicitly limited by the exemption defenses contained in Section 408. Accordingly, defendants who are accused of violating Section 406 must carefully consider the defenses provided by Section 408 and raise them in a timely fashion.

July 3, 2023 by Class Action Defense

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

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

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

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

Case Background

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

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

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

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

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

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

The Eighth Circuit’s Decision

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

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

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

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

Implications For Employers

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

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