Class Action Defense

September 26, 2024 by Class Action Defense

New York Federal Court Grants Class Certification To FDNY Emergency Medical Services First Responders In Pay Discrimination Suit Against New York City

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Gregory S. Slotnick

Duane Morris Takeaways: On September 24, 2024,in Local 2507 et al. v. City of New York, No. 22-CV-10336, (S.D.N.Y. Sep. 24, 2024), Judge Analisa Torres of the U.S. District Court for the Southern District of New York granted class certification in a suit accusing the City of New York (the “City”) and the Fire Department of the City of New York (“FDNY”) of discriminatory pay practices, suppression of wages, and denial of employment opportunities based on sex, gender, and/or race, in violation of: (i) Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-1 et seq. (“Title VII”); (ii) the New York State Human Rights Law, New York Executive Law § 290 et seq.; and (iii) the New York City Human Rights Law, N.Y.C. Admin. Code § 8-101 et seq. The Court certified a class of all persons employed by the City in the Emergency Medical Services (“EMS”) Bureau of the FDNY working as an Emergency Medical Technician, Paramedic, Lieutenant, Captain, Deputy Chief, and Division Commander/Chief at any time from December 2019 through present (the “Class”), as well as a sub-class of workers who identify as non-white, and another sub-class of employees who identify as female (the “Sub-classes”). Plaintiffs – current and former members of the FDNY’s EMS Bureau and their representative unions – generally alleged that the City discriminates in its pay practices against members of the Class and Sub-classes (which they claim are much more demographically diverse) in favor of its mostly white, male Fire Bureau employees.

In her order certifying the Class and Subclasses, Judge Torres explained that the plaintiffs satisfied their burden to meet the numerosity, commonality, typicality, and adequacy requirements of Rule 23, relying heavily on plaintiffs’ expert testimony and statistical analyses filed in support of their motion. The Court was unpersuaded by the City’s arguments that variations in job title, compensation, tenure, and supervisory responsibility should preclude class certification, and stated that it would not engage in “free-ranging merits inquiries” at this stage. Instead, the Court held that plaintiffs had offered significant proof that the City operated under a general policy of discrimination, including substantial (and sometimes unrebutted) evidence of common policies disparately impacting members of the Class and Sub-classes, and statistics confirming that EMS First Responders were more diverse by race and sex/gender, and paid significantly less, than Fire First Responders.

Case Background

Since 1996, the FDNY has functioned as an integrated department with two bureaus of first responders, including: (1) EMS (employing emergency medical technicians and paramedics, as well as their supervisors and commanding officers); and (2) Fire (employing firefighters, as well as their supervisors and commanding officers). Id. at 2. Plaintiffs claim that the core of the work of both EMS and Fire First Responders is the same, with their jobs substantially equal in required skill, effort, responsibility, and working conditions. Id. Plaintiffs contended that the City pays EMS First Responders substantially lower salaries than it pays Fire First Responders, and that Fire First Responders also receive more generous overtime, pension, disability, medical, dental, line of duty death, and educational benefits compared to EMS First Responders. Id. Plaintiffs also asserted that these differences in compensation result from the “pronounced difference in demographics” between EMS and Fire First Responders – specifically alleging that while EMS First Responders are “at least 55% non-white and approximately 24% female,” only “14% of Fire First Responders are non-white” and “less than 1%” are female.” Id. at 2-3.

The Court noted had previously denied a motion to dismiss the Complaint by the City, finding that plaintiffs’ claims were timely filed and that plaintiffs sufficiently pleaded their discrimination claims against the City. Id. at 3.

The Court’s Decision

The Court first set forth the applicable legal standard for class certification, including confirmation that the proposed Class must meet each of the numerosity, commonality, typicality, and adequacy requirements of Rule 23(a) by a preponderance of the evidence. Id. at 4.

The Court addressed the numerosity and ascertainability standards of Rule 23 together, concisely confirming that plaintiffs met their burden of a proposed class exceeding 40 members. Id. Moreover, the City did not contest that plaintiffs satisfied this burden, as plaintiffs asserted that the Class included approximately 4,500 to 5,000 members, with each Sub-class including well over 1,000 members, through expert analysis of pre-2023 City employment data. Id. at 5. The City also did not contest that the members of the Class and Sub-classes were readily identifiable and ascertainable. Id.

Most of the Court’s analysis focused on the commonality, predominance, and typicality requirements of Rule 23 class certification. The Court set forth the commonality standard, requiring that the action present at least one question capable of generating a “common answer apt to drive the resolution of the litigation,” but which does not mandate that the claims need be identical amongst the plaintiffs. Id. at 5-6. The Opinion confirmed that the commonality standard is satisfied where plaintiffs identify a unifying thread among class members’ claims warranting class treatment, and where plaintiffs show that their alleged injuries “derive from a unitary course of conduct by a single system.” Id. at 6. Finally, the Court confirmed that a proposed class satisfied the predominance standards “if resolution of some of the legal or factual questions that qualify each class member’s case as a genuine controversy can be achieved through generalized proof, and if these particular issues are more substantial than the issues subject only to individualized proof,” even if other matters within a case must be tried separately (i.e., damages). Id. The Court noted that typicality requires each member’s claim arise from the same course of events, with similar legal arguments made to prove defendant’s liability. Id. at 7.

Judge Torres next examined plaintiffs’ arguments in support of class certification. Plaintiffs contended that they alleged a “unitary” course of conduct in the form of three “centralized” discriminatory policies and practices applying to all Class and Sub-class members equally, claiming the City: (1) failed to assess whether FDNY’s Fire and EMS First Responders are similarly situated for purposes of compensation; (2) as a result, failed to ensure that the occupational segregation of EMS and Fire First Responders does not disparately impact the compensation of protected groups; and (3) took affirmative steps to suppress the compensation of the more diverse EMS First Responder workforce by refusing to grant EMS personnel the “uniformed” pattern increase in collective bargaining. Id. In response, the City argued that the Class and Sub-classes fail to account for differences in job duties and responsibilities amongst EMS First Responders, including the fact that some respond to calls in the field while others work in dispatch or training and instruction, and different field training and tasks, such as some working as rescue paramedics, with others working advanced services. Id. at 7-8. The City also pointed out differences in that some EMS First Responders receive percentage increases in salary to account for additional training and responsibility, and that these variances, plus dissimilar rank and tenure, undermine plaintiffs’ commonality and typicality arguments. Id. at 8.

The Court, however, was not persuaded by the City’s claimed distinctions based on rank and job responsibility, citing to plaintiffs’ arguments that the City took action or failed to act “in a centralized manner and on a Bureau-wide scale, uniformly suppressing the compensation of EMS First Responders regardless of rank, tenure, title, training, or assignment.” Id. The Court also held that questions of whether the alleged policies exist and violate federal and state law are common to all Class members, regardless of potential differences in ultimate damages owed amongst Class members. Id. The Court further ruled that for the same reason, the lead plaintiffs satisfied typicality because they all alleged they are paid less than their Fire counterparts due to the same policies, regardless of specific position, supervisory duties, and whether field-assigned or non-field-assigned. Id. at 8-9.

As for the City’s claim that plaintiffs failed to show EMS and Fire First Responders were adequate comparators for Title VII purposes, the Court opined that the City’s argument sought to turn the class certification motion into a summary judgment motion, and that Rule 23 “does not grant the court a license to engage in free-ranging merits inquiries.” Id. at 9. Moreover, through experts, Judge Torres found that plaintiffs offered statistical evidence in support of their disparate impact claims of racial, sex/gender, and compensation disparities among EMS and Fire First Responders, which the City did not dispute. The Court held that at least one of the policies plaintiffs sought to substantiate—the City’s refusal to grant EMS First Responders the uniformed pattern increase in collective bargaining—was not disputed by the City’s 30(b)(6) deposition witnesses. Id. at 9-10. Plaintiffs further provided abundant statistical evidence and expert analysis “of a kind and degree sufficient to reveal a causal relationship” between the challenged policies and the observed racial, gender, and compensation disparities. Id. at 10.

In summary, the Court found that plaintiffs offered significant proof that the City has “operated under a general policy of discrimination” through: (i) substantial (and in some cases unrebutted) evidence of common policies disparately impacting the Class and Sub-classes; (ii) statistical analyses showing EMS First Responders are more diverse by race and sex/gender than Fire, and are paid significantly less; and (iii) expert analyses showing EMS and Fire First Responders perform similar jobs and no job-relevant rationale explaining the difference in compensation. Id. at 11. The Court also very briefly confirmed that in this case, a class action is superior to individual actions, as plaintiffs alleged that individual Class members were relying on membership in the Class to vindicate their rights – another point not disputed by the City. Finally, the Court found that the lead plaintiffs were adequate representatives, since their interests aligned with those of the Class and Subclasses, and the City did not contest this position.

Implications For Employers

The Court’s grant of class certification for the Class and Sub-classes against the City and the FDNY serves as an important reminder that employers should not necessarily count on defeating class-wide claims by pointing to different job titles and roles, salary levels, or even departments. While this case concerns a very large employer and workforce, the Court’s opinion provides businesses with a roadmap of how courts in the Second Circuit tend to address class certification motions – particularly where plaintiffs rely heavily on expert testimony and statistical analyses to support their allegations.

Perhaps most importantly, companies operating in New York and within the Second Circuit must remain alert and monitor potential compensation variations amongst employees performing jobs that could be considered “similar” in nature. If they find any such variations, employers should ensure that they can pinpoint valid job-based justifications for the differences, particularly where one section of the workforce may be more demographically diverse than another. This is especially so when businesses are applying common policies and practices to all such workers, since courts will address common questions of law and fact for all proposed class members, rather than engage in the underlying factual merits at class certification.

Employers should heed this Opinion as a lesson on how courts evaluate class-wide claims and certification motions even where there may be concrete differences in job title, compensation, rank, the field or non-field nature of work, and the presence or absence of supervisory responsibilities. Moreover, although situation-dependent, businesses should always be weary of not contesting allegations made by plaintiffs and their experts in all motions filed with the court, or else risk surrendering possible defenses the court would otherwise consider!

September 20, 2024September 20, 2024 by Class Action Defense

A Bite Of The Biscuit: North Carolina Federal Court Limits FLSA Collective Action Against Bojangles To North Carolina-Based Employees Only

By Gerald L. Maatman, Jr., Alex W. Karasik, and Zachary J. McCormack

Duane Morris Takeaways: In Andrews v. Bojangles OpCo, LLC, No. 3:23-CV-00593, 2024 U.S. Dist. LEXIS 163824 (W.D.N.C. Sept. 11, 2024), Judge Robert J. Conrad of the U.S. District Court for the Western District of North Carolina granted in part Plaintiffs’ motion for conditional certification of an FLSA collective action accusing Bojangles Restaurants, Inc. and Bojangles OPCO, LLC (collectively, “Bojangles”) of misclassifying Assistant General Managers (“AGM”) as exempt, which allegedly resulted in overtime violations. Plaintiffs sought to certify a nationwide collective action. While Judge Conrad granted the certification bid brought by two former AGMs, the Court limited the grant of conditional certification to workers within the State of North Carolina since the pleadings alleged unfair practices in nine Bojangles locations – all located within North Carolina.

This decision provides an excellent roadmap for employers to defend motions for conditional certification of FLSA collective actions in terms of how to limit the geographic scope of the putative collective action and therefore limit the size of the case.

Case Background

Bojangles is a chain of fast food restaurants, operating approximately 300 locations primarily in the Southeastern United States. On September 19, 2023, two former Bojangles AGMs filed a complaint alleging that Bojangles willfully violated the FLSA by classifying AGMs as overtime-exempt administrators while simultaneously requiring them to spend the bulk of their job on tasks typically assigned to hourly employees. Id. at *2. After Plaintiffs filed their complaint, two additional AGMs filed consents to join the lawsuit. Id.

In their attempt to conditionally certify the collective action, Plaintiffs argued that the putative collective members performed the same or substantially similar primary job duties, including the non-exempt tasks of cashiering, cooking, cleaning, and restocking products. Id. Furthermore, AGMs were required to cover hourly associates’ shifts when they were absent from work and that approximately 90% of AGMs’ time was spent doing manual work and customer service duties — the same tasks assigned to hourly associates. Id. at *8. Plaintiffs also claimed they lacked authority over personnel decisions, considering General Managers were required to make final decisions on employment matters. Id. at *9. Even though the AGMs were classified as salaried employees and did not receive overtime compensation for any hours worked over forty hours per week, they were scheduled to work a fifty-hour workweek, which often resulted in working more than fifty hours. Id. at *9. Furthermore, AGMs who worked at more than one Bojangles location expressed that the job duties performed as an AGM did not change from one location to another. Id. at *10.

The Court’s Decision

The Court granted in part Plaintiffs’ motion for conditional certification. Plaintiffs sought conditional certification for all AGMs who worked at any Bojangles location nationwide since September 19, 2020. Id. at *6. In response, Bojangles argued that Plaintiffs’ evidence to support its nationwide collective relates to only a small fraction of the geographic areas in which Bojangles operates. Id. at *12. Specifically, Bojangles observed that of approximately 300 Bojangles restaurant locations in multiple states, only nine North Carolina locations were represented in Plaintiffs’ pleadings. Id. Other AGMs mentioned by the Plaintiffs also worked at locations within North Carolina. Id.

Plaintiffs attempted to further persuade the Court of the nationwide collective by pointing to previous conditional certification orders by the Court which did not limit the scope of notice or require evidence to have a minimum threshold of geographic representation at the conditional certification stage. Id. at *15. The Court rejected this argument, holding that, “Plaintiffs fail to identify any authority where a nationwide class was certified on a similar record to the one currently before the Court . . . [A]lleging mere misclassification is not sufficient for collective certification, even at this stage.” Id. Accordingly, the Court held that while Plaintiffs’ evidence regarding AGMs in North Carolina warranted that conditional certification was appropriate within the State, Plaintiffs did not establish that conditional certification was appropriate nationwide.

The Court authorized a 90-day opt-in period including the establishment of a website and text messages for potential plaintiffs whose initial notice by mail and email were returned as undeliverable. Id. The Court also authorized reminder notices, as requested by Plaintiffs and ordered Bojangles to provide the names, dates of employment, addresses, and email addresses of potential plaintiffs. Id. Further, if any potential plaintiffs’ notice by mail and email become returned as undeliverable, Bojangles must provide their telephone number of the potential plaintiff. Id.

Implications For Employers

This decision provides a blueprint for one avenue to attack collective certification — limit the geographical scope of the putative collective action. Here, Plaintiffs failed to establish that nationwide conditional certification was appropriate where Plaintiffs did not provide evidence regarding putative collective members outside the State of North Carolina. Accordingly, employers should carefully examine representative evidence when crafting their opposition to motions for conditional certification.

September 19, 2024September 19, 2024 by Class Action Defense

Louisiana Federal Court Rules The Hospital Operator’s Attempt To Disband A Collective Action Is Untimely

By Gerald L. Maatman, Jr., Bernadette Coyne, and Zachary J. McCormack

Duane Morris Takeaways: On September 6, 2024, in Hamm v. Acadia Healthcare Co., Inc., No. 20-CV-1515, 2024 U.S. Dist. LEXIS 160319 (E.D. La. Sept. 6, 2024), Judge Susie Morgan of the U.S. District Court for the Eastern District of Louisiana denied Acadia LaPlace Holdings, LLC and Oschner-Acadia, LLC’s (“Acadia”) motion to decertify Plaintiffs’ Fair Labor Standards Act (“FLSA”) collective action in a suit accusing the hospital operator of failing to pay nurses for interrupted meal breaks. After the Court previously certified the collective action by applying the rigorous standard from Swales v. KLLM Transport Services, LLC, 985 F.3d 430, 441 (5th Cir. 2021), Acadia moved to decertify the collective by claiming the workers are too dissimilar for collective-wide treatment. However, the Court ruled that Acadia’s request to decertify was improper at this late stage in the litigation considering that the Court previously certified the collective action after providing the parties with the opportunity to conduct preliminary discovery and fully brief the issue. This ruling indicates that, although the Fifth Circuit has not ruled on whether a defendant can bring a motion to decertify after certification has been granted, this issue is becoming ripe for appellate review.

Case Background

Acadia is a leading provider of behavioral healthcare services that operates a network of approximately 250 facilities in thirty-eight states and Puerto Rico. Acadia previously employed Plaintiffs Amy Hamm and Joye Wilson as nurses at hospitals it operated in Texas and Louisiana. Hamm, 2024 U.S. Dist. LEXIS 160319, at *3. On May 22, 2020, Plaintiffs filed a complaint alleging Acadia violated the FLSA and Louisiana state law by failing to pay overtime compensation for on-duty meal periods and off-the-clock work. Id. Specifically, the two former workers claimed the hospital operator automatically deducted 30 minutes from the nurses’ paychecks for meal breaks despite constant interruptions and the requirement to remain on call to respond to potential emergencies during the breaks. Id.

On March 7, 2022, Plaintiffs moved for certification of their FLSA claims as a collective action, but prior to hearing Plaintiffs’ motion, the Court found that “limited discovery [was] needed” to evaluate “whether the employees in [the] proposed collective action [were] similarly situated” within the meaning of Section 216(b) of the FLSA. Id. Ultimately, after conducting the limited discovery, the Court partially granted Plaintiffs’ motion to certify, and on July 13, 2022, defined the collective action to include all current and former hourly, non-exempt employees directly involved with patient care — such as nurses, nursing staff, aides and technicians — who worked for Acadia between May 2017 through the date of the dispute’s resolution. Acadia later filed its motion to decertify Plaintiffs’ collective action, arguing that the named and opt-in plaintiffs were not sufficiently similar to be combined into a collective action because of differences between the jobs, meal break experiences, and the claims alleged by the Plaintiffs and the potential opt-in members. Id. at *4.

The Court’s Decision

Until January 2021, district courts within the Fifth Circuit generally applied the test derived from Lusardi v. Xerox Corp., 118 F.R.D. 351 (D.N.J. 1987),during the certification process for FLSA collective actions. The Lusardi test divided the notice and class certification process into two steps. In the first step, referred to as “conditional certification,” the court determined whether the proposed opt-in plaintiffs and the named plaintiffs were similarly situated. Hamm, 2024 U.S. Dist. LEXIS 160319, at *5. The plaintiff’s burden at this step was minimal, and as such, most collective actions are typically certified. Id. The second step, which occurrs at the conclusion of discovery, and was often prompted by a motion to decertify by the defendant, requires a more rigorous determination of whether the named plaintiffs and the opt-in plaintiffs were similarly situated. Id. If not, the named plaintiffs could only bring the lawsuit on their individual behalf, not on behalf of the opt-in plaintiffs. Id. at *6.

The Fifth Circuit rejected the Lusardi approach in Swales, and now district courts within the Fifth Circuit are instructed to “rigorously scrutinize” whether the named plaintiffs and potential opt-in plaintiffs are sufficiently similar to each other at the outset of litigation, before potential opt-in plaintiffs can be notified of the FLSA action. Id. Courts in the Fifth Circuit now identify what facts and legal considerations are material to making the “similarly situated” determination and authorize preliminary discovery accordingly. Id. The Swales decision further directs courts to make the certification decision “as early as possible.” Id.

In Acadia’s motion to decertify, it asked the Court to undertake a post-discovery decertification inquiry reminiscent of the second stage of the Lusardi test. Id. at *9. Specifically, Acadia argued that evidence obtained during the preliminary discovery phase revealed differences between the jobs, meal break experiences, and claims of Plaintiffs and opt-in members, and established that the members of the collective action were not “similarly situated” under Section 216(b). Id. at *10. In response, Plaintiffs argued that Acadia’s motion was moot because the Court already declared Plaintiffs were similarly situated under the rigorous Swales approach, and certified the FLSA collective action. Id. at *11. In its reply, Acadia advanced a proposition that “[a]t the decertification stage, even post-Swales, it is still Plaintiffs’ burden to prove and maintain through the litigation that the collective members are similarly situated.” Id. Acadia argued that using the Swales framework in lieu of the Lusardi two-step process does not mean defendants forfeit their ability to later seek decertification. Id. at *13.

Ultimately, Judge Morgan ruled that Acadia’s motion to decertify came too late and that “to allow such a motion would be a waste of judicial resources.” Id. The Court reasoned that once certified under the Swales framework, after an opportunity to conduct preliminary discovery and fully brief the issues, there is no justification for a motion to decertify. Id. Although the Fifth Circuit has not yet ruled on whether a defendant may bring a motion to decertify after the initial certification of an FLSA collective action under the Swales framework, Judge Morgan opined that the Swales decision was not intended to allow this. Id. at *14.

Implications For Employers

The Hamm ruling provides guidance to employers with operations in the Fifth Circuit as to how a court will treat a motion to decertify filed after the court has granted certification utilizing the Swales standard. Moving forward, employers in the Fifth Circuit should aim to break up a proposed collective action during the fact-intensive certification process conducted towards the beginning of the litigation. Courts are unlikely to require plaintiffs to maintain, throughout the litigation, that collective members are similarly situated. Corporate counsel should take note that “conditional certification” remains non-existent in the Fifth Circuit, and once a court considers all available evidence to grant Section 216(b) certification, it is unlikely to revisit the issue.

September 19, 2024September 19, 2024 by Class Action Defense

The Class Action Weekly Wire – Episode 74: $65 Million Data Breach Settlement Tops 2024 Class Action Charts

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman, special counsel Justin Donoho, and associate Ryan Garippo with their analysis of a major settlement in the data breach class action space, and what it signifies for trends in this area as well as data security best practices for companies.

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

Episode Transcript

Jerry Maatman: Thank you, loyal blog readers for joining us for this week’s installment of our podcast series called the Class Action Weekly Wire. I’m joined today by my colleagues, Justin and Ryan, and the topic of the day is one of the most significant data breach class action settlements of 2024. Welcome, Justin and Ryan.

Justin Donoho: Hi, Jerry, thank you for having me.

Ryan Garippo: Thanks, Jerry. Happy to be here.

Jerry: So specifically, what we wanted to do was talk about the ins and outs of the $65 million class action settlement announced in a data breach lawsuit entitled Doe v. Lehigh Valley Health Network. Justin, can you set the stage for our listeners and readers about what this case is about and why it’s significant?

Justin: Yes, Jerry. In this case the plaintiffs are cancer patients. They filed a class action against Pennsylvania, based healthcare company, Lehigh Valley Health Network, for its alleged failure to protect their nude photographs taken during their cancer treatments from cybercriminals who hacked into the company servers, stole the photographs, and leaked them to the public in February 2023. The plaintiffs brought claims for negligence, breach of fiduciary duty, publicity of private matters, and other claims. The plaintiffs also sought punitive damages based on their assertion that, despite being told by the criminal hackers that the nude photos and other sensitive data would be released publicly if a ransom were not paid, the health system declined to take any action, and therefore allegedly made a knowing, reckless, and willful decision of their own to allow the criminal hackers to post their nude images on the internet.

Jerry: Most data breach class actions involve infiltration of systems involving social security information, payroll data, and like. Very unusual that would include photographs, let alone photographs of patients receiving treatment. Ryan, what were some of the particulars of the settlement agreement that plaintiffs’ counsel and defense counsel for the defendant had negotiated to get this case resolved?

Ryan: Well, Jerry, the breach affected over a 135,000 patients and employees, more than 600 of whom had their medical images posted online. So the class members will receive payouts ranging from $50 to $70,000. But the higher amounts going to those who actually had their new photos published on the internet, and the lower amounts being for those who suffered a less invasive invasion of their personal information. And, as you’ve mentioned overall, the company will pay a total of $65 million to sell those claims.

Jerry: So our Class Action Review tracks settlements in all substantive areas, including data breach, and over the last 36 months, anecdotally, data breach class actions just keep getting bigger and bigger and bigger. And this is a manifestation of that trend. How do you believe this will impact the price or the going rate of data breach class action settlements going forward in Corporate America?

Ryan: Well, Jerry, I think it’s only likely to go up. The Duane Morris Class Action Review analyzed the largest data breach settlements, and in 2023 plaintiffs secured about $515 million dollars in total for the top 10 settlements. The largest settlement being $350 million in the In Re T-Mobile Customer Data Security Breach Litigation, which accounted for the majority of that number, and the next largest settlement was $49.5 million in the In Re Blackbaud Inc. Customer Data Security Breach Litigation as well. So, this is settlement is very large for a data breach class action settlement overall, and healthcare institutions continue to be a favorite target for the plaintiffs’ bar in the cybersecurity space.

Justin: Thank you, Ryan. This settlement looks like it will likely be one of the largest data breach class action settlements in 2024 for sure. This case also continues the massive growth of data breach litigation in general over the past few years. Cybercrime is on the rise – companies need to likewise raise their own levels of data security practices to mitigate risks associated with these types of incidents. In fact, a number of data security practices including involvement of Board of Directors data encryption and password reset policies were included in some level of detail in this settlement as measures the healthcare company agreed to adopt in addition to paying out all that money to the plaintiffs. These are types of data security measures all companies should consider as they design and work to continuously improve their cybersecurity programs.

Jerry: Well, thanks so much, Justin and Ryan, for your analysis of this settlement and its implications for Corporate America. The newest edition, the 2025 Duane Morris Class Action Review, will come out in the first week of January of 2025, and my prediction would be this particular settlement certainly going to be on that top 10 list. Well, thank you loyal blog readers and listeners for tuning into this week’s installment of the Class Action Weekly Wire, and thank you, Justin and Ryan, for providing your thought leadership.

Ryan: Thanks, Jerry, and thank you to the listeners.

Justin: Thank you, Jerry. Thanks everyone.

September 17, 2024September 17, 2024 by Class Action Defense

Georgia Supreme Court Confirms Denial Of Class Certification In Data Breach Lawsuit

By Alex W. Karasik, Gerald L. Maatman, Jr., and Jennifer A. Riley

Duane Morris Takeaways: In Vest Monroe, LLC v. Doe, No. S23G1224, 2024 Ga. LEXIS 187 (Ga. Sept. 4, 2024), the George Supreme Court reversed the Georgia Court of Appeals and held that a trial court did not abuse its discretion when it denied class certification in a data breach class action lawsuit alleging that a health facility failed to protect patients’ sensitive information. The trial court originally ruled that Plaintiff failed to establish the elements of typicality and commonality, since the named Plaintiff did not suffer the same harm as the putative class that he sought to represent. The Georgia Supreme Court vacated a holding by the Georgia Court of Appeals that parted ways with the trial court.

For businesses that are embroiled in the rapidly evolving data breach class action litigation arena, this case provides valuable insight regarding how companies can oppose motions for class certification.

Case Background

Plaintiff received treatment at Ridgeview Institute – Monroe, a behavioral health and addiction treatment facility. After an employee at the facility was terminated, the employee contacted Plaintiff’s counsel of record in a medical malpractice case pending against Ridgeview and provided the attorney with digital copies of documents and recordings that she obtained from Ridgeview. Id. at *3. After becoming aware of the disclosure of the patient information, Ridgeview discovered that information pertaining to nearly 2,000 patients was compromised.

In March 2020, Defendants filed a lawsuit against the former employee in federal court, which ultimately enjoined the former employee and her counsel from further dissemination of the Ridgeview documents, and ordered her to delete the material in her possession. Defendants also notified all potentially affected individuals of the incident. In November 2020, after receiving notice of the incident, Plaintiff filed a class action complaint against Defendants, asserting a number of claims related to the unauthorized disclosure of patient information.

Plaintiff moved for class certification in March 2022. The trial court denied Plaintiff’s motion for class certification on the grounds that Plaintiff failed to establish either the required elements of commonality or typicality under OCGA § 9-11-23 (a). In finding a lack of commonality, the trial court noted the differences in the type of documents disclosed with respect to members of the proposed class, as some contained diagnosis and treatment information, while others did not. Id. at *4. Relatedly, the trial court concluded that Plaintiff’s claims did not satisfy the element of typicality because some members of the proposed class had clinical information revealed, while Plaintiff did not.

Plaintiff appealed, and the Georgia Court of Appeals reversed the trial court’s decision. The Court of Appeals rejected the trial court’s findings on commonality and typicality, and instead concluded that with respect to typicality, Plaintiff’s claims and those of the putative class arose “from the same alleged events” and were “based on the same legal theories.” Id. at *6.

The Georgia Supreme Court thereafter granted review to consider whether the trial court abused its discretion by finding that the putative class lacked commonality and typicality under OCGA § 9-11-23 (a).

The Georgia Supreme Court’s Decision

The Georgia Supreme Court reversed the Court of Appeals’ decision and held that the trial court acted within its discretion in finding a lack of typicality.

First, the Georgia Supreme Court opined that the trial court’s order reflected that it conducted the rigorous analysis contemplated by OCGA § 9-11-23.10. For instance, in its order denyingclass certification, the trial court explained that the OCGA § 9-11-23 (a)(3) typicality requirement directs that the class representative “possess the same interest and suffer the same injury as the classmembers,” and that the pertinent inquiry is “whether asufficient nexus exists between the claims of the namedrepresentatives and those of the class at large.” Id. at *9-10. The trialcourt further recognized that it was Plaintiff’s burden to prove that class certification wasappropriate and must do so by introducing affirmative evidence. Agreeing with the trial court, the Georgia Supreme Court held that Plaintiff failed to fulfill this burden.

Second, the Georgia Supreme Court held that the trial court did not rely on incorrect facts in determining that typicality was lacking. Pertinent to its assessment of typicality, the trial court found that the former employee who was responsible for the breach had access to information that had no relationship to her job duties, including patient files, many of which contained significant sensitive medical information. Id. at *10-11. The trial court also highlighted the undisputed fact that no diagnosis or treatment information related to Plaintiff was revealed. Accordingly, the Georgia Supreme Court reasoned that the trial court properly concluded that Plaintiff’s claims “do not represent the claims of all of the proposed class members because some of [the patients had] clinical information revealed whereas [Plaintiff] has not” which “leads to factual and legal differences between the claims in the case.” Id. at *13.

Finally, the Georgia Supreme Court noted that in reviewing the trial court’s findings with respect to typicality, the question before the Court of Appeals was whether the trial court’s analysis as to typicality fell “within the range of possible outcomes” permissible on abuse-of-discretion review “in which there could be room for reasonable and experienced minds to differ.” Id. at *16 (citations omitted). The Georgia Supreme Court held that, “because the trial court’s typicality determination was made in conformity with the governing legal principles, was not based on incorrect or irrelevant facts, and was within the reasonable range of possible outcomes, we cannot say that the trial court abused its discretion by finding a lack of typicality and denying [Plaintiff’s] motion for class certification on that basis.” Id. at *16-17. Accordingly, it held that the Court of Appeals erred in determining that the trial court wrongly failed to certify the class on the basis of typicality, and reversed the Court of Appeals’ decision.

Implications For Businesses

For employers and consumer-facing businesses, data breach class action litigation is near or at the top of nearly every company’s “biggest risk” list. When breaches do occur, there is a strong likelihood that a class action lawsuit will follow.

Fortunately, this decision provides a blueprint for one avenue to attack class certification — the element of typicality. It is conceivable that many other data breach class action named plaintiffs, like Plaintiff here, will not have suffered the same harm as the putative class. Accordingly, data breach class action defendants would be prudent to explore the potential factual differences between the named Plaintiff and the putative class to strengthen this defense.

September 13, 2024 by Class Action Defense

Sixth Circuit Leaves Class Certification Order Intact In Securities Fraud Case And Denies Rule 23(f) Petition To Appeal

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

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

Case Background

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

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

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

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

The Sixth Circuit’s Ruling

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

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

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

Implications For Class Action Defendants

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

September 12, 2024 by Class Action Defense

The Class Action Weekly Wire – Episode 73: Wisconsin Federal Court Blazes A New Path On FLSA Conditional Certification Process

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and associates Greg Tsonis and Derek Franklin with their analysis of a Wisconsin federal court decision weighing in on the two-step process for issuing notice of a Fair Labor Standards Act (“FLSA”) collective action, illustrating a gaining momentum among district courts toward rejecting a two-step “conditional certification” approach in favor of a one-step standard.

Episode Transcript

Jennifer Riley: Thank you for being here again, for the next episode of our weekly podcast, the Class Action Weekly Wire. I’m Jennifer Riley and with me today are Greg Tsonis and Derek Franklin. Thank you for being on the podcast today guys.

Derek Franklin: Great to be here, thanks for having me.

Greg Tsonis: Yes, thanks Jen, I’m happy to be here.

Jennifer: Today we are discussing a recent ruling coming from the U.S. District Court for the Eastern District of Wisconsin, Laverenz v. Pioneer Metal Finishing. Greg, can you tell us a little about the background of this case?

Greg: Sure, so in this case the plaintiff Amanda Laverenz filed a class and collective action lawsuit under the FLSA and Wisconsin state law alleging that Pioneer deprived her and other similarly situated hourly employees of wages through its practice of rounding employees’ time clock entries to the nearest quarter hour and paying employees based on that rounded time. Now the plaintiff moved for conditional certification of a collective action, and argued that the court should employ a lenient two-step certification process established in 1987 by a Third Circuit district court in Lusardi v. Xerox Corp. Under the Lusardi framework, named plaintiffs need only present what courts have described as a “modest factual showing” that similar potential plaintiffs exist to satisfy the first step of conditional certification. In the second step, assuming others have joined the lawsuit as opt-in plaintiffs and the parties have completed discovery on the merits, the court would then make a final determination whether the opt-in plaintiffs actually qualify as parties to the litigation on the basis of substantial similarity to the named plaintiffs in what is known as a second-stage final certification order. Now here, Pioneer responded that the Court should follow the Fifth Circuit’s 2021 decision in Swales v. KLLM Transport Services, LLC, which rejected the longstanding approach developed in Lusardi. Pioneer argued that the two-step approach “is inconsistent with the FLSA’s purpose and Seventh Circuit case law stressing the similarities of FLSA certification to Rule 23 certification, which requires ‘rigorous’ scrutiny.”

Jennifer: Yes, the Swales ruling changed the conditional certification analysis significantly. The Fifth Circuit in that case recognized that nothing in the text of the FLSA even mentions “conditional certification.” The Swales court directed that courts should consider all available evidence to determine if analyzing the merits of pending claims required a “highly individualized inquiry” into each opt-in’s circumstances and, if so, to declare a certification inappropriate. Derek, which standard did the court in the Laverenz action ultimately use?

Derek: Well, Jen, the court chose to go with Pioneer’s requested standard. The court adopted the Fifth Circuit’s FLSA collective certification approach in Swales and denied Plaintiff’s motion for conditional certification. The court actually cited in its ruling a 2022 Annual Class Action Report our colleague and Duane Morris partner Gerald L. Maatman, Jr. served as General Editor. In its ruling, the court noted that federal courts in 2021 granted FLSA conditional certification motions in 81% of rulings on such motions during the first stage of the two-step process despite – in that same year – granting 53% of FLSA decertification motions at the next stage. The Court gleaned from that data that “over half of those conditionally certified putative classes failed to survive upon a more rigorous review” and concluded, as a result, that the two-step certification process “defeats the very goal it set out to accomplish — efficiency.” The court ultimately found that “significant factual differences exist regarding how the [time rounding] policy affected each employee” given that “the rounding benefitted some and negatively affected others.” The court also stated that too many individualized claims remained in the matter that would necessarily involve fact-specific inquiries. And the court explained that “it would seem particularly inefficient and unfair to notify a broad class of employees,” given its conclusion that Plaintiff’s proposed collective action claims “involve highly individualized inquiries and defenses.” Toward that end, the Court determined that “authorizing notice in a case such as this would turn a tool into a sword,” and that “many a plaintiff would likely join the line, requiring Pioneer to defend dozens — possibly hundreds — more claims despite the fact that Laverenz has not even showed a violation of law.” Ultimately, the Court concluded that Plaintiff “failed to provide a sufficient basis for the court to facilitate notice to potential plaintiffs,” and therefore, the Court denied Plaintiff’s motion for conditional certification.

Jennifer: Wow, thanks for the overview. What a significant ruling for employers. How do you both imagine this will impact future rulings on conditional certification in the Seventh Circuit?

Greg: Well Jen, the Duane Morris Class Action Review actually analyzed FLSA conditional certification rates, and, in 2023, plaintiffs won 75% of first stage conditional certification motions. However, only 56% of those conditionally certified collective actions survived motions for decertification involving a more rigorous scrutiny. Hence, the stakes are quite meaningful in terms of the approach outlined in the Laverenz ruling.

Derek: And I would add to that – as any employer who has been sued by a plaintiff seeking to represent an FLSA collective action knows – the discovery burden imposed by application of the two-step Lusardi standard is onerous. Full merits discovery lasting more than a year is common, as opposed to a narrowly-targeted investigation of the work performed by the plaintiffs along with facts relating to the relevant factors. For that reason alone, employers with operations within the Seventh Circuit will be happy to know they can cite this ruling in the future. While no one can predict the future with any particular degree of certainty, it seems likely that this new legal trend regarding the collective action notice process may eventually need to be resolved by the U.S. Supreme Court.

Jennifer: Thank you both for your great analysis of this ruing and the possible implications it might have in the future on conditional certification motions. We will be providing the new edition of the Duane Morris Class Action Review in early January, which will have statistics on how conditional certification is shaping up for 2024. Greg and Derek, thanks for being here today, and thank you so much to our listeners for tuning in.

Greg: Thanks Jen and thank you listeners.

Derek: Happy to be here and thanks everyone.

September 6, 2024September 6, 2024 by Class Action Defense

The Class Action Weekly Wire – Episode 72: Billion-Dollar Benchmark: 2023 & 2024 Class Action Settlements

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partners Jerry Maatman and Jennifer Riley with their analysis of class action settlements over the past 24 months and key factors influencing the era of billion-dollar class actions.

Episode Transcript

Jerry Maatman: Welcome loyal blog readers to our weekly installment of our podcast series, entitled The Class Action Weekly Wire. I’m Jerry Maatman, a partner at Duane Morris, and joining me today is vice chair of our class action defense group, Jennifer Riley, of our Chicago and New York offices. Welcome, Jen.

Jennifer Riley: Great to be here, and thanks for having me.

Jerry: Today we’re discussing one of the biggest trends in the class action litigation space – involving settlement numbers and settlement amounts in class action litigation. Over the last two years, we’ve seen the highest numbers ever in the history of American jurisprudence. It’s certainly true that settlement numbers have been through the roof, and so we’re going to take a look at not only the last two years, but also the first six months of 2024. It’s clear to us that we’ve certainly entered a new era of heightened risks and higher stakes in class action litigation – Jen, what’s your take on the trends in this particular area?

Jennifer: Thanks, Jerry, I agree completely. The numbers are just staggering. In 2023, parties agreed to resolve 10 class actions for a billion dollars or more. In 2022, parties resolve 14 class actions for a billion dollars or more in settlements. That makes 24 billion-dollar settlements in two years. Many of the settlements in 2023 emanated outside of the products and pharmaceutical space, really signaling a wider base and a greater threat to businesses as these settlements continue to redistribute wealth. However, these settlements have reached virtually all industries and all areas of the country.

Jerry: Let’s talk about one in particular, and that’s the $12.5 billion-with-a-B class action settlement in 2023 stemming from the federal court in South Carolina, In Re Aqueous Film-Forming Foams Products Liability Litigation. It’s somewhat of a mass tort situation as well as product liability – involving chemicals used in film forming work and fire extinguishing agents – claiming that it causes cancer, and PFAS forever chemicals are linked to both health risks and environmental contamination. The plaintiffs claim that exposure to these chemicals resulted in cancer, liver damage, and other health conditions, and that the manufacturers of these chemicals knew or should have been aware. was no trial on the merits. Parties agreed to settle, but at $12.5 billion – the largest class action settlement of the year. What other areas and what other cases spike those big numbers over the past year?

Jennifer: The third largest settlement of 2023 was in an antitrust class action that was called In Re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation. The settlement of $5.6 billion resolved claims by the plaintiffs who were primarily merchants, merchant associations who were alleging that credit card companies and their networks engaged in anticompetitive practices. The core claim there was that the networks, Visa and MasterCard, conspired to fix interchange fees and to prevent competition, thereby inflating the costs for merchants. In particular, the plaintiffs alleged that Visa and MasterCard engaged in practices that restricted merchants from negotiating better terms or accepting competing payment methods. The plaintiffs claimed that those practices harm competition by reducing the incentive for credit card networks to lower their fees or to improve their services. And they argued that this in turn led to higher costs for merchants, which were ultimately passed on to consumers.

Jerry: So, as our readers know, we examine class action settlements every day; we track all the rulings, filings in every state court, in every federal court throughout the United States. And so we’ve done an analysis of settlements from January 1 through June 30, and we wanted to kind of preview what that looked like – Jen, what do you think the numbers are showing, or the trend is showing, in comparing the first half of 2024 to what happened over the past two previous years?

Jennifer: Great question, Jerry. So, 2024 is looking to be another blockbuster settlement year. It might not be quite as robust as the past two years. But there are several settlements that already have been approved by the courts that hit that one billion-dollar benchmark. For example, in the consumer fraud space, a $1.5 billion settlement was announced in a case called Fitzgerald, et al. v. Wildcat, which is a class action alleging that around 2012 or 2013, a federally recognized Native American tribe a began partnering with a non-tribal payday lender, who entered into agreements that allowed them to oversee and collect on loans issued by lenders owned by the tribe. In that case, the tribe alleged that the lenders collected millions of dollars in unlawful debts, and conspired with each other and others to repeatedly violate state lending laws resulting in the collection of unlawful debts from the plaintiffs and from the class members.

Jerry: That’s a really interesting settlement, certainly an incredibly interesting class action. Another one that is beginning to get play in the press involves a government enforcement action – looks like a class action, basically functions like one – involving the State of Texas suing Meta Platforms for privacy violations. And it looks like a settlement coming in at $1.4 billion. So, given the size of some of these settlements, I agree that 2024 is shaping up to be even higher than the previous two years. So it’s very clear that we’re in a new era, a new zone in terms of the price of settlements, the expectations of plaintiffs, and the way the plaintiffs’ bar is pushing the numbers in terms of their theory – to file, certify, and then monetize these class actions.

Well, thanks so much, Jen, for your time and your expertise, and thank you to our loyal blog readers for listening in to this installment of our Class Action Weekly Wire.

Jennifer: Thanks, and thanks everyone for joining us.

September 6, 2024 by Class Action Defense

Fifth Circuit Vacates The U.S. Department Of Labor’s Tip Credit “Final Rule”

By Gerald L. Maatman, Jr., Jennifer A. Riley, Emilee N. Crowther, and Derrick Fong-Stempel

Duane Morris Takeaways: In Restaurant Law Center et al v. U.S. Department of Labor, No. 23-50562, 2024 WL 3911308 (5th Cir. Aug. 23, 2024), the Fifth Circuit reversed a decision of Judge Robert L. Pitman of the U.S. District Court for the Western District of Texas that had upheld the U.S. Department of Labor’s final rule that stated that an employer could only take a “tip credit” against the federal minimum wage for work performed by a tipped employee that was part of the employee’s tipped occupation. The Fifth Circuit held that, pursuant to the U.S. Supreme Court’s holding in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244, 2273 (2024) (which the Fifth Circuit expressly noted was rendered after Judge Pitman’s trial court decision), it was not required to defer to the DOL’s interpretation of the Federal Labor Standards Act. Accordingly, it found the Final Rule contrary to the express language of the FLSA, and that it should be vacated because it was arbitrary and capricious.

This case previews the likely new federal circuit court regime regarding agency interpretations of ambiguous statutes post-Loper Bright. The ruling is also a required read for all hospitality industry organizations.

Case Background

The Fair Labor Standards Act (“FLSA”) permits employers to take a “tip credit” when paying the wages of any “tipped employee,” such that employers may pay tipped employees $2.13 per hour “under the theory that a large portion of such employees’ total earnings comes from tips.” Id. at *2. If the difference between the $2.13 wage and the general minimum wage of $7.25 per hour is not paid by tips, the FLSA requires the employer to pay the remainder to ensure that the tipped employee makes at least $7.25 an hour. Id.

The DOL is permitted to promulgate rules interpreting and clarifying the FLSA, and issued an 80/20 guidance concerning the tip credit in its sub-regulatory Field Operations Handbook in 1988. Id. at *3. The 80/20 guidance provided that an employer was permitted to take a full tip credit for employees that provided both tipped and non-tipped work, so long as the employee’s non-tipped work did not constitute more than 20% of that employee’s work. Id.

In 2021, the DOL issued a “Final Rule” concerning the 80/20 guidance, which mandated that “[a]n employer may only take a tip credit for work performed by a tipped employee that is part of the employee’s tipped occupation.” Id. at *4 (citing 29 C.F.R. §531.56(f) (2021)). Notably, the term “tipped occupation” is not defined in the FLSA. Id. However, the Final Rule demarcated three categories of work, including: (a) directly tip-producing work (e.g., a server); (b) directly supporting work (e.g., bussing tables); and (c) work not part of the tipped occupation (e.g., preparing food). Id. The Final Rule stated that an employer could take the tip credit for “tip-producing work,” but that if more than 20 percent of an employee’s workweek is spent on “directly supporting work,” then the employer cannot claim the tip credit for the excess. Id. Moreover, the Tip Credit stated that any “directly supporting work” could not be performed for more than 30 minutes at a time. Id.

Thereafter, in December 2021, the Restaurant Law Center and the Texas Restaurant Association (collectively, the “Associations”) filed suit against the DOL, seeking to permanently enjoin the DOL’s enforcement of the Final Rule, and moved for a preliminary injunction. Id. at 5. The district court denied the preliminary injunction, and the Associations appealed to the Fifth Circuit. Id.

The Fifth Circuit’s Decision

The Fifth Circuit held that the DOL’s 2021 Final Rule was contrary to the FLSA’s text, was arbitrary and capricious, and should be vacated. Id. at *2.

In so holding, the Fifth Circuit first focused on the impact of the U.S. Supreme Court’s recent holding in Loper Bright. Prior to Loper Bright, “[u]nder Chevron, a court reviewing agency action for compliance with [a] relevant statute had to defer to ‘permissible’ agency interpretations, ‘even if not the reading the court would have reached if the question initially had arisen in a judicial proceeding.’” Id. (citing Loper Bright, 144 S. C.t at 2264).

However, post-Loper Bright, the Fifth Circuit noted that it was required “to return to the APA’s basic textual command: independently interpret [an ambiguous] statute and effectuate the will of Congress” and “use every tool at [its] disposal to determine the best reading of the statute and resolve the ambiguity.”” Id. (citing Loper Bright, 144 S. Ct. at 2263, 2266). And, since the Supreme Court’s holding in Loper Bright came out after the district court’s holding, the Fifth Circuit reasoned that it was required “to depart from the district court’s analysis at the very start.” Id. at *10.

As such, the Fifth Circuit’s analysis started with the express text of the FLSA, which states that a “tipped employee” means “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” Id. at *11 (citing 29 U.S.C. § 203(t)). Importantly, the FLSA does not define the terms “engaged in” or “occupation.” Id. Since the terms were not expressly defined, the “ordinary meaning of these terms in 1966, when the tip credit was added to the FLSA, controls.” Id.

After reviewing the “contemporary dictionary definitions” of the words “engaged” and “occupation,” the Fifth Circuit found that the phrase “‘engaged in an occupation’ most naturally indicate[d] a focus ‘on the field of work and the job as a whole,’ rather than specific tasks.” Id. at *11-13. Importantly, the Fifth Circuit noted that “[t]he FLSA does not ask whether duties composing [a] given occupation are themselves each individually tip-producing.” Id. at *14. Accordingly, the Fifth Circuit held that “the Final Rule applies the tip credit in a manner inconsistent with the FLSA’s text.” Id.

Finally, the Fifth Circuit noted that the plain language of the FLSA “asked only whether the employee is engaged in an occupation in which he receives tips.” Id. at *20. As such, the Fifth Circuit determined that the Final Rule “replace[d] the Congressionally chosen touchstone of the tip-credit analysis — the occupation — with one of the DOL’s making — the timesheet.” Id. For these reasons, the Fifth Circuit concluded that the Final Rule was arbitrary and capricious. Id. at 821.

Implications For Employers

This decision has wide-ranging implications. The Fifth Circuit’s ruling in Restaurant Law Center sets aside 36 years of precedent upholding the 80/20 standard contained in the Final Rule. It arms employers with additional ammunition to fight wage & hour class and collective actions brought by private plaintiffs who have relied on the DOL’s Final Rule to position their lawsuits. It also previews what could be the new federal circuit court regime regarding agency interpretations of ambiguous statutes post-Loper Bright. As the Fifth Circuit stated, Congressional intent controls, and “while longstanding agency practice might have the power to persuade, it has never had the power to control.” Id. at *16 (citing Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)).

September 4, 2024 by Class Action Defense

Announcing A New Journal Article By Justin Donoho Of Duane Morris Explaining Best Practices To Mitigate High-Stakes AI Litigation Risk

By Justin Donoho

Duane Morris Takeaway: Available now is the recent article in the Journal of Robotics, Artificial Intelligence & Law by Justin Donoho entitled “Three Best Practices to Mitigate High-Stakes AI Litigation Risk.” The article is available here and is a must-read for corporate counsel.

Organizations using AI-based technologies that perform facial recognition or other facial analysis, website advertising, profiling, automated decision making, educational operations, clinical medicine, generative AI, and more increasingly face the risk of being targeted by class action lawsuits and government enforcement actions alleging that they improperly obtained, disclosed, and misused personal data of website visitors, employees, customers, students, patients, and others, or that they infringed copyrights, fixed prices, and more. These disputes often seek millions or billions of dollars against businesses of all sizes. This article identifies recent trends in such varied but similar AI litigation, draws common threads, and discusses three best practices that corporate counsel should consider to mitigate AI litigation risk: (1) add or update arbitration clauses to mitigate the risks of mass arbitration; (2) collaborate with information technology, cybersecurity, and risk/compliance departments and outside advisors to identify and manage AI risks; and (3) update notices to third parties and vendor agreements.

Implications For Corporations

Companies using AI technologies face multimillion- or billion-dollar risks of litigation seeking statutory and common-law damages under a wide variety of laws, including privacy statutes, wiretap statutes, unfair and deceptive practices statutes, antidiscrimination statutes, copyright statutes, antitrust statutes, common-law invasion of privacy, breach of contract, negligence, and more. This article analyzes litigation brought under these laws and offers corporate counsel three best practices to mitigate the risk of similar cases.