Class Action Defense

September 11, 2023 by Gerald L. Maatman, Jr.

Ohio Federal District Court Authorizes Notice Of FLSA Claims In Step One Of The Two-Step “Strong Likelihood” Test And Certifies Rule 23 Class

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

Duane Morris Takeaways: In Hogan v. Cleveland Ave Restaurant, Inc. d/b/a Sirens, et al., 15-CV-2883 (S.D. Ohio Sept. 6, 2023), Chief Judge Algenon L. Marbley of the U.S. District Court for the Southern District of Ohio authorized notice to potential opt-in plaintiffs and conditionally certified a collective action of thousands of adult club dancers in a case asserting violations of the Fair Labor Standards Act (“FLSA”) and Ohio law, including claims of unpaid minimum wages, unlawfully withheld tips, and unlawful deductions and/or kickbacks. For good measure, the Court also granted class certification on the plaintiffs’ state law claims. The opinion is a must-read for employers in the Sixth Circuit facing — or hoping to avoid facing — class and collective wage & hour claims.

Case Background

On October 6, 2015, the named plaintiff Hogan filed the lawsuit as a class and collective action asserting violations of the FLSA and Ohio law. After amending the complaint in May 2017 to add additional defendants, on May 14, 2020, Hogan filed a Second Amended Class and Collective Action Complaint, the operative complaint, with a second named plaintiff, Valentine.

In the operative complaint, the named plaintiffs asserted claims against seven adult entertainment clubs and their owners and managers as well as two club associations and an individual defendant with which the clubs were associated. The plaintiffs later settled their claims against one of the seven clubs.

The allegations in the operative complaint center on the clubs’ use of a landlord-tenant system by which the defendant clubs charged dancers “rent” to perform at the clubs for tips from customers in lieu of paying them wages for hours worked.

On September 26, 2022, the plaintiffs moved for certification of their claims as a class and collective action. The parties concluded briefing on the motion five months before May 2023, when the Sixth Circuit issued its pivotal decision in Clark v. A&L Homecare and Training Center, LLC, 68 F.4th 1003 (6th Cir. 2023). In Clark, the Sixth Circuit ushered in a new, more employer-favorable standard for deciding motions for conditional certification pursuant to 29 U.S.C. § 216(b) of the FLSA.

The District Court’s Decision

First, the court articulated the standard by which it would decide the plaintiffs’ motion for court-supervised notice of their FLSA claims. The court described the Sixth Circuit’s opinion in Clark as “maintain[ing] the two-step process for FLSA collective actions but alter[ing] the calculus.” Slip Op. at 7. Whereas pre-Clark case law authorized notice at step one of the two-step process after only a modest showing of similarly-situated status, the standard post-Clark demands that plaintiffs show a “strong likelihood” exists that there are others similarly situated to the named plaintiffs with respect to the defendants’ alleged violations of the FLSA prior to authorizing notice. Defendants after Clark retain the ability, after fact discovery concludes, to demonstrate that the named plaintiffs in fact are not similarly- situated to any individual who files a consent to join the lawsuit as a so-called opt-in plaintiff. Also unchanged by Clark is the standard for determining similarly-situated status for FLSA purposes.

The court in Hogan concluded that the plaintiffs adequately demonstrated a “strong likelihood” that they are in fact similar to the proposed group of dancers who too were classified as “tenants” of the six defendant clubs who paid rent to lease space at the clubs to earn tips from customers without receiving any wages from the defendant clubs.

In support of their motion, the plaintiffs submitted sworn declarations, deposition testimony, and documentary evidence of the defendants’ policies and practices with respect to dancers. The court found that the plaintiffs showed that the clubs maintained a system in which the defendants acted together to require dancers to pay rent for leasing space, often documented in lease agreements, instead of being paid as employees for performing work.

Among the defendants’ arguments opposing the plaintiff’s motion, the court considered, but ultimately rejected, the defendants’ argument that arbitration provisions in the lease agreements should preclude court-authorized notice of the FLSA claims. The court cited Clark for the proposition that it may consider as a relevant factor the defense of mandatory arbitration agreements in deciding whether to authorize notice of FLSA claims. Homing in on the facts, the court reasoned that members of the potential collective action did not all sign the lease agreements and that those who signed the lease agreements had the option to agree to forgo arbitration of their claims. According to the court, the defendants would have a stronger basis to defeat court-authorized notice if they could show that all dancers had to sign the lease agreement and the lease agreement made arbitration mandatory.

In addition, the court evaluated whether the plaintiffs satisfied the Rule 23 standards for seeking to certify a class of dancers on their state law claims. The court concluded that the plaintiffs met the requirements for class certification under Rule 23(b)(3), because questions of law or fact common to class members predominated over any questions affecting only individual members (the predominance inquiry), and that a class action was superior to other available methods for fairly and efficiently adjudicating the case (the superiority inquiry).

As to predominance, the court reasoned that the issue of the defendants’ alleged unlawful system of treating dancers as tenants rather than paying them wages predominated over individualized issues such as whether a particular dancer signed a lease agreement. As to superiority, the court concluded that the relatively small size of each dancer’s wage claim demonstrated that individuals would have little incentive to pursue their claims alone. Finding no factors pointing against class treatment of the claims, the court concluded that treating the claims as a class action was the superior method for adjudicating liability efficiently.

Implications For Employers

Hogan is the latest in a series of opinions applying the Sixth Circuit’s novel “strong likelihood” standard to plaintiffs’ efforts to expand the scope of their FLSA claims to potential opt-in plaintiffs. The developing case law in this area reflects a highly fact-specific approach to deciding whether plaintiffs have made the necessary showing to unlock court-authorized notice of their claims to potential opt-in plaintiffs. The opinion in Hogan is significant in that it grapples with the “strong likelihood” standard alongside the well-established test for certifying a class pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure.

September 8, 2023 by Class Action Defense

The Class Action Weekly Wire – Episode 29: EEOC Strategic Plan Update

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partners Jerry Maatman, Jennifer Riley, and Alex Karasik with their analysis and discussion of the Equal Employment Opportunity Commission’s (“EEOC”) Strategic Plan for Fiscal Years 2022-2026.

Episode Transcript

Jerry Maatman: Welcome, loyal blog readers to our weekly installment of the Friday podcast, the Class Action Weekly Wire. I’m joined today by my partners, Alex Karasik and Jennifer Riley. Welcome.

Jennifer Riley: Great to be here. Thanks for having me.

Alex Karasik: Thanks, Jerry – Thrilled to be on the podcast.

Jerry: Today’s topic is the EEOC Strategic Plan for 2022 through 2026. It was just published this past month. Alex – what’s this about and what does it mean for employers?

Alex: Great question, Jerry. The Strategic Plan furthers the EEOC’s mission of preventing and remedying unlawful employment discrimination in advancing the Commission’s goal of providing equal opportunities and employment for all people. The Strategic Plan focuses on 1) enforcement, 2) education and outreach, and 3) organizational excellence. The Strategic Plan also provides performance measures for each strategic goal. So for corporate counsel who are involved in employment-related compliance as well as EEOC litigation, the new Strategic Plan is really required reading. You can find a copy of the Strategic Plan linked to the Duane Morris Class Action Blog, where we discuss the impact of the Plan and break down what it means for employers.

Jerry: Jen, enforcement is a big ticket item – it reminds me of the old EF Hutton commercial, ‘when EF Hutton speaks, people listen.’ And as Alex said, certainly when the EEOC talks about how it’s going to spend taxpayer dollars in enforcement of anti-discrimination laws, employers should listen and take notice. What are the takeaways in your mind when it comes to enforcement-related issues?

Jen: Well in the Strategic Plan, Jerry, the EEOC describes its primary mission as to prevent unlawful employment discrimination through its administrative mechanisms and through the litigation in terms of its enforcement mechanisms as well as through as adjudicatory and oversight processes. So the EEOC states that its main strategic focus for employing these mechanisms is through this fair and efficient enforcement based on the circumstances of each charge or each complaint, while maintaining a balance of meaningful relief for victims of discrimination.

Jerry: Well, I know that you can divide up the EEOC’s docket into systemic cases and non-systemic cases – systemic cases being much like class actions, even though the EEOC doesn’t have to comply with Rule 23 to litigate those. The EEOC also talks about outreach and education. Alex, is that something that employers should heed and take notice of?

Alex: Absolutely, Jerry – and one of the goals of the EEOC is trying to really prevent discrimination in these types of issues before they even ever surface to litigation. And the EEOC Strategic Plan does exactly that. It includes programs and events that come at cost-effective tools for enforcement. So these programs are primarily designed to help individuals from protected categories who may have historically been subjected to employment discrimination. Part of the EEOC’s education and outreach involves expanding technology through social media. That’s where a lot of workers are these days and a lot of people in society – and ensuring that the EEOC website and digital tools are more user-friendly and accessible and leveraging technology to capture a wider audience. These efforts to improve education and outreach are aimed at promoting public awareness of employment, discrimination laws while maintaining information and guidance for employers, federal agencies, unions, and staffing agencies. So really, the EEOC is dedicated to educating a large contingency of groups and organizations on what it can do to prevent discrimination.

Jerry: I also thought the aspect of the Plan that talked about organizational excellence was interesting. I, for one, have participated in internal EEOC training sessions where government attorneys came to be trained on cutting edge theories and techniques and employment discrimination laws. I once was an outside lecturer welcomed in by the EEOC to give that training. Jen, what do you read in terms of the EEOC’s investment taxpayer dollars into organizational excellence and what it means at the receiving end for employers in terms of lawsuits and techniques used by the government and litigating those lawsuits?

Jen: Well Jerry, the Strategic Plan makes clear that organizational excellence is the cornerstone of achieving the eeoc strategic goals. So the Plan states that the EEOC aims to improve on its culture of accountability, inclusivity, and accessibility. In addition to that, the Plan states that the EEOC will continue to advance civil rights in the workplace by ensuring resources are allocated properly to strengthen its intake, outreach, education, enforcement, and service goals. In terms of that organizational excellence strategic goal, it has two prongs including improving the training of the EEOC employees and enhancing the EEOC’s infrastructure. For employees, the Plan states that the EEOC will continue to foster enhanced diversity, equity, inclusion, accessibility in the workplace, maintain employee retention, implement leadership and succession plans. And relative to that to the agency’s infrastructure, the Plan embraces this increased use of technology through analytics as well as through the management of fiscal resources to promote the agency’s mission.

Jerry: Those are a very ambitious set of accomplishments that the government is staking out for itself. Alex, at the end of the day, what do you think are the most important takeaways for corporate counsel in terms of this newly published document from the EEOC?

Alex: Corporate counsel should pay attention to what they can do to best prevent discrimination and use this Strategic Plan to identify areas where the EEOC will essentially be focusing on in the coming years. The Strategic Plan is like a roadmap for businesses that they should absolutely pay attention to. Some of the focus areas that we learned about were systemic discrimination, conciliation, litigation, increasing the Commission’s capacity for litigating systemic violations of the discrimination laws., and how the EEOC is really ramping up its efforts to investigate charges. The EEOC’s focus on technology is a really key area for employers, and they’re taking advantage of the tools, such as the Internet, artificial intelligence, websites, social medias, and these types of things to look at where might employees be, and where my potential victims discrimination be, and how we can reach them to both educate them on the discrimination laws and what the key priorities are for the businesses and the Commission alike in terms of handling these issues. So these continue to be pillars for the agency – the areas that we just discussed today – and employers should absolutely buckle up for what will be a very busy four years of EEOC-initiated investigations and litigation.

Jerry: Thank you, Alex, and thank you, Jen, for your analysis and synopsis of this most important document. And thank you, loyal blog readers for tuning into our weekly podcast. Have a great day.

Alex: Thank you, Jerry.

Jen: Thanks, everybody.

September 6, 2023 by Gerald L. Maatman, Jr.

Court Dismisses VPPA Class Claim Alleging That General Mills Shared Consumer Data With Facebook And Google

By Gerald L. Maatman, Jr. and Tyler Zmick

Duane Morris Takeaways: In Carroll v. General Mills, Inc., No. 23-CV-1746 (C.D. Cal. Sept. 1, 2023), Judge Dale Fischer of the U.S. District Court for the Central District of California issued a decision dismissing (for a second time) a class claim brought against General Mills under the Video Privacy Protection Act (“VPPA”). In its decision, the Court ruled that General Mills – a company that manufactures and sells cereals and other food products – did not qualify as a “video tape service provider” under the VPPA, and that even if it did, Plaintiffs’ claim would still fail because they did not show they were “consumers” covered by the statute’s privacy protections. Carroll v. General Mills is the latest decision involving the VPPA – a long dormant statute that class action plaintiffs have recently turned to in attempting to seek redress for alleged privacy violations.

Case Background

Plaintiffs Keith Carroll and Rebeka Rodriguez alleged that they watched videos on General Mills’ website and that General Mills subsequently disclosed their “video viewing behavior” to Facebook and Google. Specifically, Carroll claimed that General Mills sent Facebook the video he watched online and his identifying information in connection with General Mills’ use of a Facebook advertising feature. Similarly, Rodriguez claimed that General Mills disclosed her “video viewing behavior” and other website analytics data to Google through General Mills’ use of the Google Marketing Platform.

Based on these allegations, Plaintiffs filed a class action that alleged General Mills violated the Video Privacy Protection Act (“VPPA”) by knowingly disclosing their personally identifiable information (“PII”) to Facebook and Google. See 18 U.S.C. § 2710(b)(1).

The District Court’s Decision

The Court granted General Mills’ motion to dismiss Plaintiffs’ VPPA claim. It held that Plaintiffs failed to satisfy the first two prongs of the four-step pleading test applicable to VPPA claims.

In analyzing the allegations, the Court explained that to state a VPPA claim, a plaintiff must allege that: (1) a defendant is a “video tape service provider”; (2) the defendant disclosed PII concerning a consumer to another person; (3) the disclosure was made knowingly; and (4) the disclosure was not authorized by the “safe harbor” provision set forth in 18 U.S.C. § 2710(b)(2).

Like the claim asserted in the previous version of their complaint, the Court determined that Plaintiffs’ VPPA claim failed at step (1) because Plaintiffs did not adequately allege that General Mills is a “video tape service provider,” and that even if the Court were to proceed to step (2), Plaintiffs would also fail at that step based on their inability to show that they qualify as “consumers” under the statute.

“Video Tape Service Provider”

Regarding step (1), the VPPA defines a “video tape service provider” as “any person, engaged in the business, in or affecting interstate or foreign commerce, of rental, sale, or delivery of prerecorded video cassette tapes or similar audio visual materials.” 18 U.S.C. § 2710(a)(4). Importantly, the Court noted that the statute does not apply to every company that “delivers audio visual materials ancillary to its business” but only to companies “specifically in the business of providing audio visual materials.” See Order at 6.

Based on the allegations at hand, the Court held that Plaintiffs failed to allege that General Mills – who manufactures and sells cereals, yogurts, dog food, and other products – is “engaged in the business of delivering, selling, or renting audiovisual material.” Id. The Court rejected Plaintiffs’ attempt to satisfy step (1) by adding allegations in their amended complaint regarding General Mills posting on its website links to professionally made videos. In the Court’s words, these “allegations do no more than show that videos are part of General Mills’ marketing and brand awareness,” which does not suggest “that the videos are profitable in and of themselves” or that the videos “are the business that General Mills is engaged in.” Id. at 6-7.

“Consumer”

The Court next held that even if Plaintiffs had satisfied the first step, they nonetheless would have failed at step (2) based on their failure to allege facts establishing that they are “consumers” under the VPPA.

The VPPA defines “consumer” as “any renter, purchaser, or subscriber of goods or services from a video tape service provider.” 18 U.S.C. § 2710(a)(1). Read in the statute’s full context, courts have held that “a reasonable reader would understand the definition of ‘consumer’ to apply to a renter, purchaser or subscriber of audio-visual goods or services, and not goods or services writ large.” See Order at 7 (citation omitted). That is, the definition of “consumer” “mirrors the language used to define a ‘video tape service provider’ as one who is in the business of ‘rental, sale, or delivery’ of audiovisual material.” Id.; see also id. at 7-8 (“‘[C]onsumer’ is obviously meant to be cabined in the same way [as ‘video tape service provider’] – as a renter, purchaser, or subscriber of prerecorded video cassette tapes or similar audio visual materials.”).

The Court determined that Plaintiffs’ prior purchase of General Mills’ food – an “unrelated product” – does not make them “consumers of audiovisual material.” Id. at 8. The Court further noted that Plaintiffs’ failure at step (2) highlights “the fundamental issue” with their VPPA claim – namely, Plaintiffs struggle to plead that they are consumers of General Mills’ audiovisual material because General Mills is not in the business of offering audiovisual material to consumers. See id. at 8-9 (“If General Mills were in such a business, Plaintiffs would not be referring to purchases of General Mills’ food products to establish themselves as consumers.”).

Implications For Corporate Counsel

The decision in Carroll v. General Mills reflects the recent trend among class action plaintiffs’ lawyers of using traditional state and federal laws – including the long dormant VPPA – to seek relief for alleged privacy violations. In applying modern technologies to older laws like the VPPA (passed in 1988), courts have grappled with, among other issues, determining who qualifies as a “video tape service provider” or a “consumer” under the statute.

The Carroll decision may suggest that the definitions of “video tape service provider” and “consumer” are relatively straightforward, but other cases can present close calls (e.g., whether a social media platform that delivers various services to users, including video content, is a “video tape service provider”). Indeed, courts have recently faced challenges in interpreting the VPPA’s definitions in cases involving, inter alia, whether individuals who download a free app through which they view videos qualify as “subscribers” (and therefore “consumers”) under the statute.

Given this uncertainty, companies that provide audio visual materials in connection with their business operations should take advantage of the “safe harbor” amendment, adopted in 2013, under which “video tape service providers” may lawfully disclose PII with the informed written consent of consumers. To do so, companies should update their online consent provisions as needed to specifically address the VPPA.

September 6, 2023September 6, 2023 by Gerald L. Maatman, Jr.

Maryland Federal District Court Dismisses Class Action Alleging Website Privacy Violations For Lack Of Article III Standing

By Gerald L. Maatman, Jr., Jennifer A. Riley and Rebecca S. Bjork

Duane Morris Takeaways: On September 1, 2023, Judge Deborah Chasanow of the U.S. District Court for the District of Maryland granted a motion to dismiss a class action alleging that the website of defendant Jetblue Airways violated users’ privacy rights under the Maryland Website and Electronic Surveillance Act (“MWES”A). Finding that the named Plaintiff lacked Article III standing to bring the lawsuit, the Court relied upon the lack of any allegations in the Complaint that any of Plaintiff’s personal information was captured by the alleged use of a session replay code. As a result, his Complaint lacked any allegation of a concrete harm that is necessary to bestow standing by virtue of suffering an injury-in-fact. Employers are well-served to examine their websites for the level of risk they might pose of exposure to litigation of this kind, which is currently being filed in more and more courts around the country.

Case Background

Jetblue Airways Corp. (“Jetblue”) was sued by Matthew Straubmuller in the U.S. District Court for the District of Maryland, alleging that he and a putative class of website users who had visited Jetblue’s website were entitled to damages from Jetblue for violation of the MWESA. Slip Op. at 2. The purpose of that statute is two-fold: both to be a useful tool in crime prevention; and to ensure that “interception of private communications is limited.” Id. at 8.

Plaintiff alleged Jetblue’s website uses a “session replay code” and that this allows for Jetblue to track users electronic communications with the website in real time, and also can enable reenactments of a user’s visit to the website, and that these constitute actionable privacy violations under the provisions of the MWESA.

JetBlue filed a motion to dismiss. It asserted that that Plaintiff lacked Article III standing to bring his claims. It contended that Plaintiff alleged a mere procedural violation of the MWESA and did not allege a concrete harm necessary to establish an injury-in-fact to confer standing.

The District Court’s Decision

Judge Chasnow granted Jetblue’s motion to dismiss. Relying on the Supreme Court’s decision in TransUnion v. Ramirez, 141 S. Ct. 2190 (2021), she rejected Plaintiff’s argument that a statutory violation alone is a concrete injury. The Judge opined that “Courts must independently decide whether a plaintiff has suffered a concrete harm because a plaintiff cannot automatically satisfy the injury-in-fact requirement whenever there is a statutory violation.” Slip Op. at 5-6 (quoting TransUnion (“under Article III, an injury in law is not an injury in fact.”). And more to the point, she cited case law interpreting the MWESA itself to this effect, which Plaintiff had not cited. Id.

As a way of underlining its ruling, the Court noted that Jetblue had submitted a June 12, 2023 decision coming to the exact same conclusion involving a nearly identical complaint filed against Jetblue in the Southern District of California in Lightoller v. Jetblue Airways Corp. Id. at 4.n.1. Other cases involving similar rulings are presently percolating throughout the federal district courts. Id. at 7 (collecting cases).

Implications For Employers

Judge Chasnow’s decision in Straubmuller v. Jetblue Airways Corp. provides corporate counsel with a good opportunity to set up a time to talk with their company’s information technology officers to discuss litigation risks related to websites and how they interact with employees, prospective employees and customers. As more plaintiffs-side attorneys file lawsuits alleging privacy violations like the ones alleged against Jetblue in both state and federal courts around the country, many have a good chance of surviving motions to dismiss. Preventing class action lawsuits are far superior to defending them.

September 5, 2023September 5, 2023 by Gerald L. Maatman, Jr.

Arizona Federal Court Grants Pest Control Company’s Motion To Dismiss Data Breach Class Claims

By Gerald L. Maatman, Jr., Jennifer A. Riley, and George J. Schaller

Duane Morris Takeaways: In Gannon v. Truly Nolen of America Inc., No. 22-CV-428 (D. Ariz. Aug. 31, 2023), Judge James Soto of the U.S. District Court for the District of Arizona granted Defendant’s motion to dismiss with prejudice on negligence, breach of contract, and consumer fraud claims related to a data breach class action. For companies facing data breach claims in class actions, this decision is instructive in terms of how courts consider cognizable damages, especially when damages allegations are inadequately plead.

Case Background

Defendant Truly Nolen of America Inc. (“Defendant” or the “Company”), is an Arizona corporation that provides pest control services across the United States and in 30 countries around the world. Id. at 2. The Company experienced a data breach between April 29, 2022 and May 11, 2022. On May 11, 2022, the Company learned the breach occurred and identified personally identifiable information (“PII”) and personal health information (“PHI”) that was compromised. Id. In August of 2022, Defendant sent notice letters to individuals whose data may have been compromised. Id.

The Named Plaintiff, Crystal Gannon (“Plaintiff”), alleged that she received her notice letter regarding the data breach in August of 2022. Id. at 3. In her First Amended Complaint (“FAC”), Plaintiff sought to represent two proposed classes of plaintiffs, including one for a Nationwide Class and one for an Arizona Sub-class, related to the data breach. Id.

Plaintiff alleged numerous claims such as negligence, invasion of privacy, breach of implied contract, breach of the implied covenant of good faith and fair dealing, and violation of the Arizona Consumer Fraud Act (“Fraud Act”). Id. In response, Defendant filed a motion to dismiss on the grounds that Plaintiff’s case was without basis and the entire case was subject to dismissal. Id.

The Court’s Decision

The Court held that there was no valid basis for Plaintiff’s negligence claim. Id. at 4. Plaintiff argued that the Health Insurance Portability and Accountability Act (“HIPAA”) and the Federal Trade Commission Act (“FTCA”) created a duty in Arizona from which relief could be sought. Id. The Court disagreed. It found that neither the HIPAA nor the FTCA provided a private right of action. Id. The Court reasoned that “[p]ermitting HIPAA to define the ‘duty and liability for breach is no less than a private action to enforce HIPAA, which is precluded.’” Id. The Court applied the same logic to the FTCA. Id.

On negligence damages, the Court held that Plaintiff’s FAC failed “to show identity theft or loss in continuity of healthcare of any class members – only the possibility of each.” Id. Under Arizona law, negligence damages require more than merely a threat of future harm, and on their own, threats of future harm are not cognizable negligence injuries. Id. 4-5. Similarly, as to out-of-pocket expenses, the Court opined that Plaintiff failed to demonstrate that her expenses were necessary because she did not properly show that Defendant’s identity monitoring services were inadequate. Id. at 5. Finally, the Court recognized that merely alleging a diminution in value to somebody’s PII or PHI was insufficient. Id. Therefore, the Court dismissed Plaintiff’s negligence claims.

Turning to Plaintiff’s breach of contract claims, the Court determined that Plaintiff did not show cognizable damages, a reasonable construction for the terms of the contract, or consideration for the existence of an implied contract. Id. at 6. The Court held that Plaintiff’s FAC allegations only reflected speculative damages and did not allege proof of real damages. Id. at 5. The Court opined that Plaintiff’s “vaguely pleaded” contract terms failed to show any language that would inform the terms of the agreement and Plaintiff did not point to any conduct or circumstances from which the terms could be determined. Id. at 5-6. Finally, the Court determined that even if Defendant had an obligation to protect the data at issue, such pre-existing obligations did not serve as consideration for a contract. Id. Therefore, the Court dismissed all breach of implied contract claims. Id.

On the claim for breach of the implied covenant of good faith and fair dealing, Plaintiff argued that Defendant breached by failing to maintain adequate computer systems and data security practices, failed to timely and adequately disclose the data breach, and inadequately stored PII and PHI. Because Plaintiff failed to show an enforceable promise, the Court held there could be no breach, and all claims for breach of the implied covenant of good faith and fair dealing were dismissed. Id. at 6.

The Court also dismissed Plaintiff’s Fraud Act claims because Plaintiff failed to show cognizable damages. Id. at 7. The Court reasoned “[p]laintiff cannot simply argue that the system is inadequate because a negative result occurred.” Id. The Court also reasoned that Plaintiff failed to demonstrate that Defendant’s security was inadequate when compared to other companies or any set of industry standards. Id. As to Plaintiff’s privacy claims, the Court held that there were no cognizable claims for invasion of privacy or breach of privacy, and Plaintiff did not dispute these claims in her response. Id.

Accordingly, the Court granted Defendant’s motion to dismiss as to all claims, denied Plaintiff leave to amend her complaint, and dismissed the case with prejudice. Id.

Implications For Companies

Companies confronted with data breach lawsuits should take note that the Arizona federal court in Gannon relied heavily on inadequately pleaded allegations in considering cognizable damages for purposes of granting Defendant’s motion to dismiss. Further, from a practical standpoint, companies should carefully evaluate pleadings for insufficient or speculative assertions on damages.

September 1, 2023September 1, 2023 by Class Action Defense

The Class Action Weekly Wire – Episode 28: Top Settlements In Class Action Litigation In 2022 & 2023

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 significant class action settlements throughout 2022 and a preview settlement trends in 2023.

Episode Transcript

Jerry Maatman: Hello loyal blog readers and thank you for joining our weekly installment of the Class Action Weekly Wire. Today I’m joined by my partner Jen Riley, the co-chair of the Duane Morris Class Action Practice Group. Thanks for being on our podcast today, Jen.

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

Jerry: Today we’re discussing I think the most interesting development in the class action space over the last 24 months, and that would be settlement activity. I’m a big believer that one can tell a lot about what’s going on in the class action world based on settlements in terms of what the going rate is to settle these cases – and the Duane Morris Class Action Review has a full chapter on the top 10 settlements measured by monetary values across a wide area of cases. I know, Jen, that the last year was an exceptional year of settlements – what was the major takeaway for employers?

Jen: Absolutely, Jerry. So in 2022 there were more billion dollar settlements than ever before. The opioid litigation settlements in particular fueled record highs as distributors and manufacturers inked settlements with numerous states to pay out for allegations that they contributed to the opioid epidemic in the United States. So all 10 of the largest settlements of the year 2022 were opioid related. Those numbers were astronomical – they included settlements for $7.4 billion involving distributor McKesson and $6.1 billion involving distributor AmerisourceBergen to resolve the vast majority of the opioid lawsuits brought by state and local governmental against those entities.

Jerry: It’s interesting, Jen – having studied this space for going on 20 years now, most years’ average settlements across all areas were three to five billion dollars and all of a sudden have a year where the settlements top $60 billion. It brought to mind for me the only analogous situation was two decades ago when state attorney generals and private plaintiffs settled big tobacco cases – about 20 to 25 billion dollars, a lot of money at that time two decades ago was spent, so 2022 was an exceptionally unique year by any measure. I think one of the largest consumer fraud settlements, the $6 billion student loan settlement in Sweet, et al. v. Cardona Student Debt Cancellation Settlement kind of rounded out the story in terms of big blockbuster numbers across the board.

Jen: I will also note that there were some very large antitrust settlements in 2022. The top one came in at about $2.67 billion in In Re Blue Cross Blue Shield Antitrust Litigation. That was an antitrust class action involving claims that health insurance companies violated the Sherman Antitrust Act by entering into unlawful agreements to restrain competition among them in the health and insurance sales market.

Jerry: Well not only antitrust, but also securities fraud – we had the $1 billion In Re Dell Technologies Inc. Class V Stockholders Litigation settled in Delaware as well as the $800 million In Re Twitter Inc. Securities Litigation. Those were robust settlement numbers that also pushed the settlements even higher. What were some of the other areas that you think worth watching in the current calendar year in terms of the potential for large class action settlements?

Jen: Well, definitely the largest settlement so far this year happens to be in the products liability and mass torts space. There the top story is the resolution of claims relating to contamination from so-called forever chemicals in firefighting foam. As of August of this year, all of the claims by local water authorities and municipalities have been resolved in a global settlement agreement. 3M, DuPont, and other defendants will reportedly pay about $10.3 billion to resolve those claims as part of that settlement deal.

Jerry: That is one heck of a blockbuster settlement. The other area where I think we’re going to see significant settlement activity at very high levels would be in the antitrust bucket, and will continue to see large numbers there although it would take a lot of settlements to break the record that was compiled in calendar year 2022 by our calculations checking this on a daily basis from January 1 to the present, we’re at about $38 billion dollars so uh year even if there wasn’t another settlement in 2023 after 2022, 2023 would be the biggest settlement year in the history of American jurisprudence, so still a very, very impressive record being shown by the plaintiffs’ bar in monetizing these class actions.

Jen: Agreed. Those are some impressive sums thus far this year, it will be very interesting to see how the rest of the year unfolds on that front.

Jerry: We’ll be sure to share these results in our analysis with our readers and listeners in terms of our 2024 Duane Morris Class Action Review. Thanks Jen for joining me today and for your great insights and analysis as always, and thank you to our listeners for tuning in to our Friday weekly podcast. Thank you.

August 29, 2023 by Class Action Defense

Oil and Gas Staffing Company Permitted To Intervene In FLSA Collective Action Wage Dispute And Move To Compel Arbitration

By Gerald L. Maatman, Jr., Natalie Bare, and Emilee N. Crowther

Duane Morris Takeaways: In Bone v. XTO Energy, Inc., No. 21-CV-1460, 2023 WL 5431139 (D. Del. Aug. 23, 2023), the Judge Joel H. Slomsky of the U.S. District Court for the District of Delaware granted RUSCO Operating, LLC and Ally Consulting, LLC’s (collectively, “RUSCO”) Motion to Intervene in a case filed by workers that used its app to connect with a company seeking their safety consulting services. The Court allowed RUSCO to intervene as a matter of right based on RUSCO’s interest in its classification of workers that use its app as independent contractors and its interest in enforcing RUSCO’s arbitration agreement. This case serves as a reminder to companies that provide staffing services of the benefits of monitoring litigation filed against partner companies (and the potential pitfalls of not doing so).

Case Background

Plaintiffs Cory Bone and Luis Carillo were safety consultants engaged by Defendant XTO Energy, Inc. (XTO) as independent contractors through an online app operated by RUSCO Operating, LLC and Ally Consulting. Id. at 1. They sued on behalf of themselves and other similarly- situated workers engaged through the app, alleging misclassification and subsequent failure to pay overtime in violation of the Fair Labor Standards Act (“FLSA”). Id. RUSCO asserted that they paid Plaintiffs directly for the work they provided to XTO, and by using the app, Plaintiffs and putative collective action members had agreed to arbitrate any employment-related disputes. Id. at 2. RUSCO filed a Motion to Intervene to enforce the arbitration agreement. Id.

The Court’s Decision

The Court concluded that RUSCO could intervene as a matter of right. Id.

Under Rule 24, a non-party may intervene (1) as a matter of right, if the disposition of the case would impair its interest; or (2) as a matter of permission, if common questions of law and fact exist between the non-party’s claims or defenses and those at issue in the case. The Court explained that a party must timely demonstrate the following to intervene as a matter of right: “(1) a sufficient interest in the litigation; (2) a threat that the interest will be impaired or affected, as a practical matter, by the disposition of the action; and (3) that its interest is not adequately represented by the existing parties and the litigation.” Id. (quoting Commonwealth v. President of the United States of America, 888 F.3d 52, 57 (3d Cir. 2018).

The first prong required RUSCO to demonstrate a “significantly protectable” interest, i.e., one that is specific to the intervener, capable of definition, “and will be directly affected in a substantially concrete fashion by the relief sought.” Id. at 4 (quoting Kleissler v. U.S. Forest Serv., 157 F.3d 964, 972 (3d Cir. 1998)).

The Court held that RUSCO met this prong because it classified any workers using its app as independent contractors and Plaintiffs’ claims against XTO turned “on whether Plaintiffs [were] employees or independent contractors.” Id. In addition, the Court opined that RUSCO had a significant protectable interest in the litigation due to its interest in enforcing the arbitration agreement Plaintiffs had executed in order to use the app. Id. (discussing RUSCO’s successful intervention in Field v. Anadarko Petro. Corp., 35 F.4th 1013, 1016 (5th Cir. 2022) based on its “interest in enforcing [its] arbitration agreements, particularly given the interrelatedness of the parties’ contractual relationships and the plaintiff’s claims, is ‘a stake in the matter that goes beyond a generalized preference that the case come out a certain way’”).

The second prong required RUSCO to establish “a tangible threat to [its] legal interest.” Id. at 5. The Court held that RUSCO met this prong because the Court’s determinations regarding independent contractor misclassification and arbitration agreement enforcement “could negatively impact RUSCO’s legal interests.” Id.

Finally, the third prong required RUSCO to establish that its interest “diverge[d] sufficiently from the interests of [XTO], such that [XTO might not be able to] devote proper attention to the [RUSCO’s] interests.” Id. (citing Commonwealth, 888 F.3d at 59). on this issue, the Court concluded that XTO could not adequately represent RUSCO’s interest in the litigation because Plaintiffs brought claims based on improper payment, and RUSCO — not XTO — had paid the workers asserting those claims. Id. Moreover, at the time of RUSCO’s intervention, XTO had not yet sought to compel Plaintiffs to arbitration so it had not devoted proper attention to RUSCO’s interests in that regard. Id.

Implications for Employers

Companies providing staffing services should review litigation filed against the entities to which they provide staff to evaluate whether the disposition of claims or issues in the litigation will implicate their interest. Staffing companies that refer workers to other companies should ensure the contract contains adequate notice provisions concerning litigation pertaining to the employment relationship. Companies that do not discover litigation that may affect their interests may have to live with results of unfavorable outcomes.

August 29, 2023 by Gerald L. Maatman, Jr.

Ohio Federal Court Grants Conditional Certification In Wage & Hour Collective Action Under The Sixth Circuit’s New “Strong Likelihood” Standard

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

Duane Morris Takeaways: In Gifford v. Northwood Healthcare Group LLC et al., No. 22-CV-04389 (S.D. Ohio Aug. 21, 2023), Judge Sarah D. Morrison of the U.S. District Court for the Southern District of Ohio granted plaintiff’s motion for conditional certification of a wage & hour collective action pursuant to 29 U.S.C. § 216(b) of the Fair Labor Standards Act (“FLSA”). Through sworn declarations and documentary evidence of defendants’ meal break policy, the Court found plaintiff showed a “strong likelihood” that she was similarly-situated to potential collective action members who may elect to join the lawsuit. The ruling adds to the body of case law applying the Sixth Circuit’s new standard for notice to potential opt-in plaintiffs in putative FLSA collective actions announced in Clark v. A&L Homecare and Training Center, LLC, 68 F.4th 1003 (6th Cir. 2023), and ought to be required reading for any employers involved in wage & hour litigation.

Case Background

On December 15, 2022, plaintiff filed a Complaint against Northwood Healthcare Group, LLC and Garden Healthcare Group, LLC, two entities operating healthcare facilities in Ohio. Plaintiff allegedly worked at two such facilities as a non-exempt Licensed Practical Nurse. The lawsuit targeted the defendants’ meal break practices. Plaintiff contended that due to staffing shortages and the demands of patient care, she did not receive a full, uninterrupted 30-minute (“bona fide”) meal break on a regular basis. As alleged in the Complaint, defendants automatically deducted 30 minutes of time from her hours worked even when she did not receive a bona fide meal break, resulting in unpaid overtime compensation. On behalf of herself and similarly situated other employees, Plaintiff brought claims asserting failure to pay overtime wages under the FLSA, failure to pay overtime wages under the Ohio Minimum Fair Wage Standards Act (“OMFWSA”), failure to keep accurate payroll records under the OMFWSA and failure to pay wages timely under the Ohio Prompt Pay Act.

On March 15, 2023, plaintiff filed a motion for conditional certification of a collective action. On May 15, 2023, defendants opposed the motion on the merits and urged the Court to delay ruling until the Sixth Circuit issued its opinion in Clark.

On May 19, 2023, the Sixth Circuit in Clark announced a more rigorous standard for authorizing notice of an FLSA lawsuit to other employees. Abandoning the prior standard of a “modest factual showing” of similarly situated status, the standard in Clark requires plaintiffs to establish a “strong likelihood” that they are similarly situated to potential other plaintiffs.

Days later, in her reply brief filed on May 23, 2023, plaintiff argued that the evidence she presented in her motion satisfied the new standard in Clark.

The Court’s Decision

The Court determined that the evidence provided in support of plaintiff’s motion satisfied the “substantial likelihood” standard announced in Clark.

Specifically, plaintiff provided her own sworn declaration and the sworn declarations of six individuals who had filed consents to join the lawsuit as opt-in plaintiffs. Together, plaintiff and the other declarants worked at six of the 14 facilities plaintiff sought to include in her lawsuit. The Court found the declarations told a consistent story of employees not receiving overtime pay for those occasions when patient care needs required employees to skip or cut short their designated 30 minutes for a meal break, even after employees complained to management about being undercompensated.

Plaintiff also submitted evidence of employee handbooks in effect at the six facilities at which the declarants had worked for the defendants. The Court found that the handbooks reflected nearly identical policies on overtime compensation and meal breaks. For example, the meal break policy in the various employee handbooks stated that employees who worked through their meal breaks would receive pay for their time, whether the work was authorized or not. Defendants argued that plaintiff’s evidence fell short of identifying a “companywide” policy. Defendants pointed out that the declarants had no personal knowledge of the meal break practices in effect at facilities operated by defendants at which they had not worked. The Court disagreed. It opined that plaintiff presented enough evidence of a unified theory of conduct by defendants, notwithstanding that the declarants did not represent former employees at all of the facilities the plaintiff sought to include in the lawsuit.

The Court concluded that the evidence “establishes to a certain degree of probability” that the plaintiff, the individuals who had already filed consents to become opt-in plaintiffs, and the other potential plaintiffs performed the same tasks, were subject to the same policies and were unified by a common theory underlying their causes of action. Id. at 8.

In so ruling, the Court authorized plaintiff to send notice to all current and former hourly, non-exempt direct care employees of defendants who had a meal break deduction applied to their hours worked in any workweek in which they were paid for at least 40 hours of work during a three-year lookback period and through the final disposition of the case.

Implications For Employers

The Court’s ruling in Gifford demonstrates that application of the Sixth Circuit’s “strong likelihood” standard is highly dependent on the evidence presented by a plaintiff. By contrast, under the prior standard, courts routinely granted plaintiffs’ motions to authorize notice to potential opt-in plaintiffs.

Employers with operations in Ohio, Tennessee, Michigan and/or Kentucky should keep a close watch on Gifford and other cases applying the Sixth Circuit’s new standard in FLSA litigation.

August 28, 2023 by Class Action Defense

Seventh Circuit Breathes New Life Into Ex-Workers’ Antitrust Wage-Suppression Class Action Battle With McDonald’s

By Gerald L. Maatman, Jr. and Sean P. McConnell

Dane Morris Takeaways: On August 25, 2023, Judge Frank Easterbrook of the U.S. Court of Appeals for the Seventh Circuit published an opinion in which a three-judge panel held that Plaintiffs — former McDonald’s workers — alleged a plausible violation of Section 1 of the Sherman Act, 15 U.S.C. § 1 in Deslandes v. McDonald’s USA, LLC, Nos. 22-2333 & 22-2334 (7th Cir. Aug. 28, 2023). The Seventh Circuit rejected the district court’s conclusion that plaintiffs failed to allege a per se violation of Section 1 because the horizontal no-poach restraint alleged by plaintiffs could be a naked restraint between competitors rather than a restraint ancillary to the success of cooperative venture. Instead, the Seventh Circuit concluded that additional discovery, economic analysis, and potentially a trial could be required to resolve the issue.

The ruling in Deslandes v. McDonalds is required reading for any corporate counsel handling antitrust class action litigation involving no-poach or non-solicitation issues.

Case Background

Plaintiffs, a group of former McDonald’s workers, brought a class action over alleged antitrust violations in the U.S. District Court for the Northern District of Illinois. Defendants McDonalds USA, LLC and McDonald’s Corporation (collectively, McDonald’s) operate fast-food restaurants or do so through a subsidiary, and until recently, every McDonald’s franchise agreement contained a provision prohibiting any franchise operator from hiring any person employed by a different franchise or by McDonald’s itself until six months after the last date that person had worked for McDonald’s or another franchise. Plaintiffs allege that they were unable to earn higher wages at other franchises while these provisions were in effect. The district court dismissed the complaint, and Plaintiffs appealed.

Case Remanded for Further Proceedings

A horizontal agreement between competitors could be considered a per se violation of Section 1 of the Sherman Act or it could be considered a violation under the Rule of Reason. Per se violations are reserved for certain agreements, like price-fixing or market allocation. All other arrangements by competitors are considered under the Rule of Reason, which includes an assessment of the relevant product or service market and a defendant’s (or defendants’) power in such market. The assessment of market power typically includes an analysis of market share and barriers to entry and expansion, among other factors.

Here, Plaintiffs did not allege that McDonald’s had market power in the market for labor at its restaurants, and the Seventh Circuit agreed with the district court that there was so much competition for fast-food restaurant workers that McDonald’s could not have had market power. Nonetheless, the Seventh Circuit disagreed with the district court’s determination that Plaintiffs had not alleged a per se violation.

A no-poach clause (or any other clause) is considered ancillary, rather than naked, if it is ancillary to the success of a cooperative venture. The district court concluded that Plaintiffs had not alleged a per se violation because the no-poach clause was ancillary to the franchise agreement in that it expanded the output of burgers and fries and led to the success of the cooperative venture between franchises. The Seventh Circuit disagreed with this analysis because “it treats benefits to consumers (increased output) as justifying detriments to workers (monopsony pricing).” Id. at 3. While the Seventh Circuit recognized the possibility that the no-poach clause could have been protecting franchises’ investment in training, it found that selling more burgers and fries to consumers is immaterial to justifying any detriment to workers from the provision and remanded the case for further proceedings on the question.

Implications For Employers

Deslandes v. McDonald’s is notable in that it opens the door to significant discovery, economic analysis, and potentially even trial proceedings to determine whether a no-poach (or similar employment provision) is ancillary to an agreement or a naked restraint that can be adjudicated only on the pleadings. The Seventh Circuit also signaled that the fact that the no-poach provision was nationwide in scope (rather than limited to a particular labor submarket) and that fact that the restriction lasted for the duration of employment and an additional six months (rather than limited to the time to recoup training investment) could tend to show that the no-poach clause was an illegal means for suppressing wages rather than a reasonable restraint to further the success of the overall franchise. Employers utilizing no poach agreements are well-served to consider the Deslandes ruling in detail.

August 27, 2023August 28, 2023 by Class Action Defense

Read It And Weep, Subscribers – Attorneys’ Fee Award Delays Approval Of NYT Settlement

By Gerald L. Maatman, Jr. and Katelynn Gray

Duane Morris Takeaways – In Moses v. N.Y. Times Co., No. 21-2556, 2023 WL 5281138 (2d Cir. Aug. 17, 2023), Objector-Appellant Eric Isaacson (“Isaacson”) was successful in appealing an order of the U.S. District Court for the Southern District of New York approving a class action settlement, and attorneys’ fee award, and an incentive award in a class action against the New York Times (the “NYT”) alleging violations of California’s Automatic Renewal Law. The Second Circuit’s opinion is a case study for corporate counsel on the attributes of class action settlements that courts are apt to reject during the approval process.

Background Of The Case

Plaintiff Maribel Moses (“Moses”) brought a class action on behalf of similarly-situated subscribers in California against the NYT alleging it violated the California Automatic Renewal Law (“ARL”) by enrolling consumers who sign up for a NYT subscription, either through its website or the App, in a renewing subscription without providing the requisite disclosures and authorizations.

The parties engaged in informal discovery and mediation right off the bat and reached an agreement which settled the claims of 876,606 persons. Under the terms of the settlement agreement, NYT agreed to implement business reforms to comply with the ARL, and to provide class members with Access Codes valid for a one-month free subscription to a NYT product, or a pro rata cash payment. A $1.65 million non-reversionary settlement fund was established to pay all approved claims, attorneys’ fees of up to $1.25 million, and a court-approved incentive award to Moses of up to $5,000.

The district court preliminarily approved the settlement agreement on May 12, 2021 and conditionally certified the class for settlement purposes. Of the 876,606 persons, three class members, including Isaacson, objected to the settlement. Isaacson’s arguments were focused on the fairness of the settlement, the attorneys’ fees calculation, and the lawfulness of the incentive award. In approving the settlement, the district court applied a presumption of fairness standard and found it was reached in “arm’s-length negotiation between experienced, capable counsel . . . after a nine-hour mediation before a neutral third party.” Id. at 8. The district court further found the relief afforded to the class was “commensurate with the harm alleged” and that the incentive award was appropriate under Second Circuit precedent. Id. at 9. With respect to the proposed attorneys’ fee award, the district court found the Access Codes were not coupons under the Class Action Fairness Act’s (“CAFA”) coupon settlement provisions, which includes various restrictions on the award of attorneys’ fees. Instead, the district court looked to the value of the entire settlement in determining whether the award was appropriate and ruled that given its face value of $5,563,000, $1.25 million in attorneys’ fees (22.5% of the total face value of the settlement) was reasonable. The attorneys’ fee award constituted 76% of the $1.65 million settlement fund.

Isaacson appealed the judgement to the Second Circuit.

Second Circuit’s Decision To Vacate The District Court’s Judgment

In vacating the district court’s judgement, a three-judge panel of the Second Circuit agreed with Isaacson that the district court applied the wrong legal standard when it approved the proposed settlement and wrongly concluded that the Access Codes were not “coupons” under the CAFA.

Federal Rule of Civil Procedure 23(e) requires court approval when settling claims of a certified class and provides that a district court may only approve a class-wide settlement after a hearing and only on finding that it is “fair, reasonable, and adequate.” Acknowledging the nine factors historically used to evaluate the fairness, reasonableness and adequacy of a class settlement, and without displacing them, the panel pointed to the 2018 revisions to Rule 23(e)(2), which include a list of four considerations district courts must evaluate, one of which is whether the “proposal was negotiated at arm’s length.” The inclusion of this factor, the panel held, “prohibit courts from applying a presumption of fairness to proposed settlements arising from an arms-length agreement.” Id. at 13. Instead, the panel explained, courts must consider all four factors outlined in Rule 23(e)(2) “holistically,” which includes, among other considerations, taking into account the terms of any proposed award of attorney’s fees. Id.

Isaacson argued, and the panel agreed, that the district court erred when it presumed the proposed settlement was fair because it was reached in an arm’s-length negotiation, and further abused its discretion when it failed to evaluate such fairness in light of the attorneys’ fee and incentive awards. Notably, the panel opined “the error does not automatically require the reversal of the settlement’s approval”, and that it is “possible” the district court’s errors could be “harmless.” Id. at 22. In this case however, the panel found the error could not be “written off as harmless” given the fee awards were “intimately intertwined with the settlement.” Id. at 22-23. In fact, the panel pointed out that the amount of attorneys’ fees and incentive payment awarded directly impacted the amount of funds available for pro rata distribution to class members. As such, the district court was required to consider these fees, not just separately, but together with the other requisite considerations.

With respect to the attorneys’ fee award, the panel agreed with Isaacson that the Access Codes were coupons “under the plain meaning of the word,” i.e., digital vouchers provided to class members valid only for “select products or services.” Id. at 29, 32. The fact that the class members had the option to take cash relief was not of import, the panel found. As such, since the Access Codes were coupons, the district court was required to apply the CAFA’s coupon settlement provisions when calculating the attorneys’ fee awards, which looks to the redemption value of the coupons, as opposed to the face value of the settlement. On remand, the panel said the district court must evaluate the settlement both in light of the fee award and comply with the CAFA’s coupon settlement requirements when determining the amount of such an award.

The one argument of Isaacson’s shot down by the panel was his challenge to the approval of the $5,000 incentive award. It refused to reverse established precedent in the Second Circuit or depart from Rule 23, which allows incentive awards that are fair and appropriate.

The panel ultimately vacated and remanded the district court’s order approving the settlement and the attorneys’ fees award. At that same time, it did not opine on the fairness of the settlement or suggest that it must be overturned.

Implications For Corporate Defendants

The Second Circuit’s ruling is a perfect example of how an attorneys’ fee award that is not thought through can serve to delay, and potentially derail, the class action settlement process. It is not enough to simply consider it on its own, but the proposed attorneys’ fee award must be considered holistically with all the Rule 23(e)(2) factors in determining whether the ultimate proposal is fair, reasonable, and adequate.