Class Action Defense

June 9, 2023 by Class Action Defense

New York Federal Court Denies Lead Plaintiff Status In Securities Fraud Class Action Based On A Loss Of $323.20

By James J. Coster and Nelson Stewart

Duane Morris Takeways: The U.S. District Court for the Eastern District of New York recently declined to reverse a Magistrate Judge’s denial of a motion seeking to appoint two investors as lead plaintiffs, and their attorneys as class counsel, in a securities fraud class action where the combined losses alleged by the two investors totaled just $323.20. In Guo v. Tyson Foods, Inc., et al, 1:21-CV-00552 (E.D.N.Y. June 1, 2023), putative class members alleged Tyson Foods, Inc. had misled investors about the adequacy of its Covid-19 safety measures, which resulted in a decline of the company’s share price when the misleading information was publicly disclosed. Magistrate Judge James R. Cho found that the movants’ losses were not sufficient to demonstrate an interest in the outcome of the litigation that would ensure compliance with the vigorous advocacy requirements of Rule 23 of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). In denying the motion on Rule 72 review, District Judge Anne M. Donnelly held that the decision was comprehensive, and not “clearly erroneous” or “contrary to law,” as required by the highly deferential standard of review for non-dispositive motions under Rule 72(a). The Court’s refusal to reverse the decision illustrates that a mere prima facie showing of certain damages may not be sufficient to satisfy the adequacy requirements of the PSLRA.

Background

Plaintiff Mingxue Guo filed a putative class action against Tyson asserting violations of the Securities Exchange Act of 1934. The complaint alleged that Tyson and certain officers and directors of the company had failed to disclose the financial implications of its purportedly inadequate Covid-19 safety protocols in publicly filed documents to the SEC between March 13, 2020 and November 16, 2020. On December 15, 2020, the Comptroller of New York City called on the SEC to investigate Tyson and its alleged failure to implement proper safety protocols. Tyson’s share price dropped 2.5%, or $1.78, per share on December 15, 2020.

Tyson investors Chen Porat and Keagan Marcus filed a motion that sought their appointment as lead plaintiffs, and approval of their attorneys as class counsel. Porat alleged losses in the amount of $156.25 and Marcus allegedly incurred losses of $166.95. None of the parties had identified a class member that suffered a greater financial loss and no other member of the class had filed a competing motion for appointment as lead Plaintiff within the required time frame. Porat and Marcus argued that courts typically approve lead Plaintiffs with losses similar to, or less than, the losses they incurred. As discussed in Judge Cho’s decision, a purported class member seeking appointment as lead Plaintiff in a securities class action must meet the typicality and adequacy requirements under Rule 23 of the PSLRA. Porat and Marcus were found to have met the typicality requirement because both parties asserted claims that were based on the same facts concerning the alleged misrepresentations as other class members during the same period. With respect to the adequacy requirement, however, they had not established that they would fairly and adequately protect the interests of the class. Judge Cho held that the PSLRA requires lead Plaintiffs to have a significant financial interest in a class action to avoid Plaintiffs from simply acting as an instrument of counsel, who may have recruited them for that purpose. This requirement incentivizes the lead Plaintiff to monitor and control the litigation in a fashion that will best serve the interests of all the class members. Because Porat and Marcus lacked a significant financial interest in the outcome of the litigation, the Court opined that they failed to satisfy the requirements of the PSLRA and their motion was denied. The ruling concluded that that the case should proceed on an individual basis.

The Court’s Decision

In denying the Rule 72 objections to reverse Magistrate Judge Cho’s decision, Judge Donnelly noted that the deferential standard of review for non-dispositive motions under Rule 72(a) created a heavy burden for a party seeking reversal. The decision of a Magistrate Judge denying or approving a lead Plaintiff is non-dispositive. Thus, a movant must demonstrate that the Magistrate Judge’s decision denying appointment of proposed lead Plaintiff was “clearly erroneous” or “contrary to law,” and the Court found that Porat and Marcus had not met that burden. Porat and Marcus had argued that Magistrate Judge Cho’s ruling was erroneous because it would preclude small class actions by appointing only lead Plaintiffs who had suffered a large loss, thereby creating a loss requirement that does not exist under the PSLRA. They further argued that a small loss should not preclude a prima facie showing of adequacy.

Judge Donnelly held that the lack of a specific minimum loss requirement in the PSLRA does not alter the broad discretion the statute grants to the courts in determining the adequacy of a lead Plaintiff. Judge Donnelly opined that the Magistrate Judge’s decision was comprehensive and in accordance with the exacting requirements of the PSLRA. The Court determined that the necessity of a significant financial interest advanced the historical purpose of the PSLRA, and the decision was in line with a number of prior case law authorities that denied motions of proposed lead Plaintiffs on similar grounds.

Key Takeaways

The existence of some measure of damages may not be sufficient to meet the adequacy requirements of the PSLRA unless a proposed lead Plaintiff can demonstrate an interest that will incentivize forceful advocacy on behalf of the entire class. Clearly, damages of $323 is not enough. The decision in Guo indicates that proving adequacy will often necessitate a substantial financial stake in a litigation to serve the restrictive purposes of the PSLRA. Class members who seek appointment as lead Plaintiff without the requisite financial interest will also face a very narrow standard of review if their motion is denied.

June 9, 2023June 9, 2023 by Class Action Defense

The Class Action Weekly Wire – Episode Sixteen: Wage & Power Hour: Key Takeaways From FLSA Class Actions In 2022

June 8, 2023 by Gerald L. Maatman, Jr.

Illinois Federal Court Denies Class Certification In Chicago Water Department Race Discrimination Lawsuit

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

Duane Morris Takeaways: In Edmond, et al. v. City of Chicago, No. 17-CV-4858 (N.D. Ill. June 6, 2023), Judge Matthew F. Kennelly of the U.S. District Court for the Northern District of Illinois denied a motion for class certification filed by a group of current and former employees alleging workplace race discrimination in violation of state and federal law. The ruling highlights the viability of defense positions relative to Plaintiffs’ failure to meet the Rule 23 commonality requirement, which was instrumental to defeating their bid for class certification.

Case Background

Nine African-American workers currently or previously employed by the Chicago Department of Water brought a putative class action against the City of Chicago and several individuals employed by it in 2017, alleging race discrimination and a hostile work environment on behalf of a group of employees. Plaintiffs alleged the existence of an ongoing and pervasive “culture of racism” fostered by organizational leadership across five bureaus and various sub-bureaus, treatment plants, and construction sites. Id. at 4. The lawsuit was brought after the City’s Inspector General uncovered emails containing racist exchanges between Department commissioners and deputies, which resulted in resignations of two executives. Id.

Plaintiffs alleged that the hostile work environment included racially offensive language, threatening gestures, and disparate treatment of Black employees in violation of 42 U.S.C. §§ 1981 and 1983 and Illinois law, and filed a motion to certify a class that included all Black workers employed by the Water Department since 2011 and three sub-classes for individuals who had been eligible for overtime, those with disciplinary infractions, and those who had been denied promotions.

In 2018, the Court granted Defendants’ partial motion to dismiss. Plaintiffs then brought a motion to amend the complaint in order to drop the individuals from the suit, which was granted without prejudice. Subsequently, Plaintiffs filed a motion to certify the classes pursuant to Rule 23 of the Federal Rules of Civil Procedure.

The Court’s Decision

The City argued that because Plaintiffs were unable to establish a shared work environment in their hostile work environment claim due to the Department’s dispersed workforce, Plaintiffs failed to identify a common contention whose resolution would resolve class claims, as required under Rule 23(a)(2)’s commonality element. The Court agreed with this position. It opined that there was no “evidence of common areas shared by all Department employees or instances of harassment broadcast across the entire Department.” Id. at 10. The Court found that the experience of putative class members varied across the Department, with individual claims of discrimination ranging from verbal to visual conduct, while others alleged bias in duty assignments or disciplinary actions.

Plaintiffs additionally contended that a pervasive culture of discrimination permeated the Water Department. They cited statements made by members of the city administration and the Inspector General’s investigation, and posited that this was proof of a “de facto policy of racism” across the workplaces. Id. at 11. The Court was not convinced that this had a uniform impact on all the named Plaintiffs and putative class members to satisfy the commonality question, and it denied the motion for class certification based on Plaintiffs’ failure to meet this threshold under Rule 23(a).

Likewise, Judge Kennelly rejected Plaintiffs’ arguments for certification of each sub-class based on a pervasively racist culture. The Court concluded that disciplinary, overtime, and promotion decisions were made by individual supervisors based on their personal discretion and varied across the Department, and that Plaintiffs failed to show evidence that the same decision-makers were responsible for such actions. Id. at 23. The Court was not convinced by Plaintiffs’ expert witness’ use of statistical data to show a disparate impact, noting that similar evidence had not been sufficient to demonstrate commonality for purposes of class certification in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011).

Implications For Employers

The Edmond ruling underscores the importance of maintaining and utilizing a well-organized workplace reporting structure and managerial discretion in employment matters in anticipating arguing the absence of Rule 23’s commonality requirement, as seen in the Wal-Mart decision. In dismissing all of Plaintiffs’ arguments after finding an absence of a work environment common to all putative class members and no top-down decision-making policy regarding wages and promotions, the Court signals its steady reliance on the well-established standards for these types of claims, providing a valuable reaffirmation to employers’ reliable defense strategies.

June 7, 2023 by Class Action Defense

Georgia Federal Court Approves Consent Judgment For Department Of Labor-Initiated FLSA Action

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

Duane Morris Takeaways: In Su v. 811 Autoworks LLC et al., No. 3:21-CV-00220 (N.D. Ga. June 5, 2023), a federal district court in Georgia entered a consent judgement requiring an employer to pay approximately $40,000 for back wages and liquidated damages to end an FLSA suit filed by the U.S. Department of Labor (DOL) last year. The circumstances of the award are far from typical, and show how context is everything.

For employers facing DOL-initiated lawsuits involving retaliation, overtime, and recordkeeping prohibitions of the FLSA, this decision is illustrative of the potential for liquidated damages for failures to adhere to the FLSA, particularly in disputes over back wages and final wages where retaliation occurs.

Case Background

The DOL filed an FLSA action on behalf of former workers (“Claimants”) of 811 Autoworks LLC d/b/a/ AOK Walker Luxury Autoworks (“AOK”) and AOK’s owner, Miles Walker. The Claimants alleged they were denied pay for final wages and did not receive required overtime pay when they worked over 40 hours in a workweek. In its investigation, the DOL also determined Walker failed to keep adequate and accurate records of employees’ pay rates and work hours in violation of the FLSA’s recordkeeping prohibitions.

Additionally, at least one Claimant, Andreas Flaten, alleged he was retaliated against for requesting his final paycheck where AOK delivered his final $915 paycheck as 91,500 oil covered pennies with an expletive marked pay stub left on the driveway of his residence. Subsequently, the oil covered pennies damaged Flaten’s driveway and took nearly seven hours to remove.

The Court’s Decision

The Court resolved the DOL suit by entering its consent judgment. The consent judgement directed AOK to compensate workers who exceeded 40 hours in a workweek at a rate of “at least one-half times the regular rate at which such employee is employed, unless such employee qualifies for an exemption . . .” Id. at 2. The consent judgment also ordered that AOK must “not threaten or intimidate (verbally or in writing), terminate or threaten to terminate, coerce or attempt to influence behavior, disparage in person or electronically, or retaliate or discriminate against any current and/or former AOK employees based on AOK’s belief that an employee was engaged in protected activity.” Id. at 2-3. The Court further included a definition for “protected activity.” Id. at 3. The consent judgement required AOK “shall not fail to make, keep and preserve adequate and accurate employment records as prescribed by Regulation.” Id. In response to Flaten’s retaliation allegations, the Court sought immediate removal from AOK’s website all photographs and references to Flaten and permanently enjoined AOK from posting photographs or references to Flaten on any other website or social media site. Id.

As to payments, the Court held AOK was “restrained from withholding back wages in the total amount of $19,967.9 plus liquidated damages in the amount of $19,987.09.” Id. at 4. The Court provided a schedule for the payments, where the payments must be delivered to, and noted AOK would be in default for failure to make any payments per the schedule. Id. at 4-5. Finally, the Court required AOK to post this Consent Judgment and immediately post U.S. Department of Labor, Wage and Hour Division Fact Sheet #77A in all conspicuous places in or about its facility. Id. at 6.

Implications For Employers

Employers that are confronted with DOL-initiated litigation involving FLSA prohibitions should, from a practical standpoint, continuously review recordkeeping procedures, overtime policies, and final wage policies to ensure FLSA compliance. Employers should also note that, in response to the alleged retaliation, the Court sought removal of and enjoined the company from referencing the retaliated claimant on its own website and any other website or social media site. And obviously, paying disputed wage by dumping a truckload of oil-covered pennies on the driveway of a worker is ill-advised.

June 5, 2023 by Class Action Defense

Nebraska Federal Court Allows EEOC-Initiated ADA Lawsuit To Proceed

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

Duane Morris Takeaways: In EEOC v. Werner Enterprises, Inc., No. 8:18-CV-00329, 2023 U.S. Dist. LEXIS 95981 (D. Neb. May 31, 2023), a federal district court in Nebraska denied an employer’s partial motion to reconsider the Court’s prior denial of its motion for summary judgment, holding that facially discriminatory policies can be demonstrated through evidence other than hiring policy documents.

For employers facing EEOC-initiated lawsuits involving ADA claims in the hiring process, this decision is instructive in terms of the evidence courts will consider at the summary judgment stage, particularly training documents that may be discriminatory on their face.

Case Background

The EEOC filed suit on behalf of a hearing-impaired truck driver applicant (the “Claimant”) who submitted an application with Defendant Werner Enterprises, Inc. (“Werner”). The Claimant, along with other hearing-impaired applicants, allegedly were subject to a different workflow for applications. The EEOC claimed an internal training document provided by Werner instructed its recruiters to provide a different workflow for applications from hearing-impaired drivers – if the recruiter was “aware of an FMCSA waiver or a hearing issue, then the recruiter was directed ‘do not Pre-Approve the application.’” Id. at *3. Instead, the recruiter would send the hearing-impaired applicants completed application “to the manager basket,” and management would decide to move forward or not. Id. Therefore, the EEOC contended Werner’s pre-approval procedure adversely affected hearing-impaired applicants.

After the Claimant filed an administrative charge, and the EEOC ultimately filed a lawsuit on his behalf, Werner moved for summary judgment. It argued that its training document at issue “does not unlawfully classify applicants because of their disability.” Id. at *4. Instead, Werner maintained diverting applications from hearing-impaired applicants was to verify that an applicant had a valid exemption from physical qualification standards. Id.

The Court rejected Werner’s argument and reasoned that the training document does instruct recruiters to treat hearing-impaired applicants differently from other applicants. Id. at *4-5. Subsequently, Werner filed a motion to reconsider the denial of its motion for summary judgment.

The Court’s Decision

The Court denied Werner’s motion for reconsideration.

In Werner’s motion for summary judgment, it asserted that the EEOC’s claim of a “facially discriminatory” hiring policy could only be based on a single training document without considering other evidence. In its motion to reconsider, Werner pivoted and argued that the Court erred by considering what might be shown by evidence beyond the face of the training document. Id. at *5-6. The Court reasoned that applicable case law authorities consider whether the policy is discriminatory on its face, but this inquiry is not dispositive of the entire claim. The Court also opined that the EEOC could demonstrate discriminatory intent through other evidence if the policy is not discriminatory on its face. Id. at *8. The Court also noted that the policy at issue was facially discriminatory – “even if a policy isn’t discriminatory on its face (which, to reiterate, this document is.)” in light of Werner’s assertion. Id.

The Court rejected Werner’s argument that the EEOC’s claim of a facially discriminatory hiring policy was based exclusively on the training document itself. First, the Court explained the basics of a discrimination claim require the EEOC must show, among other things, an adverse employment action because of disability. Second, the Court explained that discriminatory intent can be proved either through direct evidence of discrimination, or through a showing of disparate treatment. Id. at *6. As to this point, the Court clarified there is direct evidence of discrimination when the “evidence shows a specific link between the alleged discriminatory animus and the challenged decision, sufficient to reasonably support a finding that an illegitimate criterion actually motivated the adverse employment action.” Id.

The Court held that Werner’s training document evidenced disparate treatment, but the effect of that treatment, if any, occurred after the applications from hearing-impaired drivers were diverted to the “manager basket.” Id. at *9. The Court also found the EEOC was not bound by its pleading to rely exclusively on the face of the training document to support its claim. Id. Finally, the Court determined the disputed issue for the parties to focus on is whether accommodating a hearing-impaired placement driver is reasonable. Id. at *10-11. Therefore, the Court denied Werner’s motion to reconsider the denial of Werner’s motion for summary judgment.

Implications For Employers

Employers confronted with EEOC-initiated litigation involving hiring practices should take note that the Court relied heavily on additional evidence demonstrating discriminatory intent supporting the purported facially discriminatory policy. Further, from a practical standpoint, employers should carefully evaluate training documents that may impact applicants with disabilities, as courts are apt to scrutinize these materials.

June 2, 2023 by Class Action Defense

The Class Action Weekly Wire – Episode Fifteen: Labor Class Actions

June 2, 2023 by Brandon Spurlock

Utah Federal Court Sounds Off On Discovery Of Materials That Could Be Replicated By Artificial Intelligence

By Brandon Spurlock

Duane Morris Takeaways: Given the fast-growing use of generative AI tools such as ChatGPT, much has been written about the privacy issues surrounding these platforms. Many employers have serious concerns about whether sensitive company data risks exposure vis-a-vis the use of chatbots and other artificial intelligence tools. This potential harm was recently cited by parties seeking to protect the confidentiality of sensitive documents produced in federal litigation entitled M.A. v. United Behavioral Health, et al., Case No. 2:20-CV-000894 (D. Utah May 23, 2023). The Court’s decision to ultimately protect the confidentiality of the disputed documents is instructive for businesses that may need to seek similar protection during litigation.

Case Background

In M.A. v. United Behavioral Health, et al., Plaintiffs asserted causes of action against Defendants, a group of providers, for recovery of benefits under the Employee Retirement Income Security Act (“ERISA”) and violations of the Mental Health Parity and Addiction Equity Act (“MHPAEA”). In response to requests for the production of documents, Defendants designated certain documents as confidential pursuant to the stipulated protective order entered in the case prior to production. Id. at 2. Some of the documents consisted of guidelines for subacute skilled care prepared by a third-party and licensed to Defendants. Id. Plaintiffs challenged the confidential designation and Defendants moved for a protective order. Id. at 3.

Plaintiffs argued that the documents were subject to mandatory disclosure based on provisions of the ERISA and the MHPAEA, and that the mandatory disclosure provisions precluded Defendants from designating the documents confidential. Id. In conducting its analysis, the Court determined that Rule 26(c)(1)(G) governed Defendants’ motion, and the Court applied the three-factor test applicable to motions for a protective order, including: (1) the party seeking protection is required to show that the information sought is a trade secret or other confidential research or commercial information; (2) that such disclosure might be harmful; and (3) the harm from disclosure is outweighed by the need for access. Id. at 3-4. If the moving party can satisfy all three prongs, the burden then shifts to the party seeking disclosure that such disclosure is relevant and necessary. Id. at 4.

The Court’s Ruling

Although Plaintiffs asserted that this balancing test was inapplicable because of the mandatory disclosure provisions contained in the ERISA and the MHPAEA, the Court disagreed. It opined that even if the statutes’ disclosure provisions applied, the question before the Court was not about disclosure (because the documents had already been produced), but whether Defendants were allowed to designate the documents confidential. Id. at 5. Defendants submitted multiple affidavits to demonstrate that the disputed documents contained commercially sensitive, proprietary, and confidential information. Id. at 8. Specifically, regarding the subacute care guidelines, to help illustrate the potential harm, the supporting affidavits established that the care guidelines were proprietary and copyrighted, and further asserted that not only would harm result if competitors could pirate or sell the guidelines if disclosed, but also the proprietary guidelines could be used to “develop artificial intelligence and machine learning models, all of which would allow would-be competitors to use [the] guidelines to develop a broader suite of derivative products and services.” Id. at 10 (footnote 41).

The Court agreed with Defendants and entered a protective order for the disputed documents.

It held that the declarations were “sufficient to establish that unrestricted disclosure of the [documents] would result in commercial and economic injury to Defendants and non-parties.” Id. at 10. Having established the potential harm, the Court further found that Plaintiffs failed to carry their burden of showing that the unrestricted disclosure of the documents was necessary. Id. at 12.

Implications of The Decision

For businesses involved in large, complex class action litigation, the discovery process often involves the production of documents that contain commercially sensitive and proprietary information which merits confidential treatment during the course of the litigation. This decision illustrates that when the opposing side challenges such confidential designations, the party seeking protection will need to demonstrate the potential harm that could result from disclosure.

With the availability and ubiquitous nature of generative AI tools, the potential harm is exacerbated given how AI can further exploit such disclosures. Businesses should be mindful that the arguments that prevailed in this matter could help protect confidential information under similar circumstances.

June 1, 2023 by Class Action Defense

Colorado Federal Court Denies Class Certification Without Uniform Job Conditions In Hybrid Wage & Hour Litigation

By Gerald L. Maatman, Jr., Emilee N. Crowther, and Nicolette J. Zulli

Duane Morris Takeaways: In Levine v. Vitamin Cottage Natural Food Markets, Inc., No. 20-CV-00261, 2023 U.S. Dist. LEXIS 92027 (D. Colo. May 25, 2023), Magistrate Judge Scott T. Varholak of the U.S. District Court for the District of Colorado granted Defendant Vitamin Cottage Natural Food Markets, Inc.’s (“Vitamin Cottage”) Motion to Decertify Plaintiff’s FLSA collective action, and denied Plaintiff’s Motion for Rule 23 Class Certification. The Court’s decision in this case aptly illustrates the standards under which courts should analyze, and defendants should move, for decertification of FLSA collective actions, as well as the standards for certification of a Rule 23 class in wage & hour misclassification lawsuits. This opinion is well-worth a read by corporate counsel, as it underscores the importance of well-planned and strategic discovery in defending class and collective actions in the context of an exemption misclassification case. Furthermore, it also demonstrates the contingent relationship and outcome of concurrently filed motions to for decertification brought by defendants and motions for Rule 23 class certification brought by plaintiffs.

Case Background

Vitamin Cottage owns and operates more than 150 grocery stores in nineteen states, and employs over 3,000 individuals. Plaintiff, a former Assistant Store Manager (“ASM”) in Colorado, filed suit under the Fair Labor Standards Act (“FLSA”) and Colorado Wage Claim Act (“CWCA”) alleging improper classification of ASMs as exempt employees and denying them overtime.

In November 2020, the Court granted Plaintiff’s Motion for Conditional Certification and conditionally certified a collective action for the purposes of Plaintiff’s FLSA claims. In total, one-hundred fifty-eight (158) individuals opted-in to the collective action against Vitamin Cottage. Thereafter, Plaintiff and Vitamin Cottage conducted written discovery and depositions.

After the close of discovery, Vitamin Cottage filed a Motion to Decertify the conditionally certified collective action on the grounds that the opt-ins and Plaintiff were not similarly situated. Two months later, Plaintiff filed a Motion to for Class Certification, seeking to certify a Rule 23(b)(3) class of ASMs for the purpose of Plaintiff’s state law claims.

The Court ultimately granted Vitamin Cottage’s Motion to Decertify, and denied Plaintiff’s Motion for Class Certification.

The Court’s Decision On The Motion For Decertification

In granting Vitamin Cottage’s Motion for decertification, the Court emphasized that its review at the post-discovery decertification stage of whether workers “are similarly situated” under the FLSA is “strict.” Id. at *5. The Court evaluated the following factors in its strict “similarly situated” analysis: “(1) the disparate factual and employment settings of the individual plaintiffs; (2) the various defenses available to defendant which appear to be individual to each plaintiff; and (3) fairness and procedural considerations.” Id. at *5; see also Thiessen v. Gen. Elec. Capital Corp., 267 F.3d 1095, 1102-05 (10th Cir. 2001) (known as the Thiessen factors).

As the basis of the suit was a misclassification claim, for the first factor, the Court conducted “a fact-intensive inquiry into the daily activities of each individual plaintiff in order to adequately identify the actual scope of Plaintiffs’ job duties to determine the extent and consequences of any disparities among them.” Id. at *10 (quoting Green v. Harbor Freight Tools USA, Inc., 888 F.Supp. 2d 1088, 1099 (D. Kan. 2012)). After noting that FLSA claims are permitted to proceed collectively “when disparities among the opt-in plaintiffs are ‘not material’ and are ‘outweighed by the similarities between those Plaintiffs,’” the Court held that the discovery responses and deposition testimony established “material disparities” that weighed against the matter “proceeding collectively.” Id. at *10-11.

While Plaintiffs argued that the disparities between the opt-ins were minor and non-material, and that the ASMs collectively spent the majority of their time on non-exempt tasks, the Court reiterated that “determining the exemption status of any given individual depends on all the facts in a particular case and demands an examination of the character of the employee’s job as a whole.” Id. at *18. Expanding on that general proposition, the Court noted “the amount of time spent performing exempt work . . . is not the sole test of whether an employee is exempt,” and analyzed the disparities that arose during discovery between potential collective members’ involvement in: (1) management (extent and type); (2) scheduling and task assignment; (3) managing and reporting store finances and performance; (4) ensuring store compliance with food safety regulations, including managing safety audits; (5) managing employee complaints and grievances; (6) directing the work of other employees; (7) hiring and firing employees. Id. at *11-16.

Ultimately, despite some uniformity (including a uniform job description, employment policies, and Vitamin Cottage’s uniform policy of classifying ASMs as non-exempt), the Court stressed that “the decertification analysis must turn on whether the [collective action] members were actually performing similar duties,” and where opt-ins “effectively disavow the job descriptions as not reflective of their day-to-day responsibilities,” opt-ins “may not rely on the job description itself as generalized evidence of the scope and similarity of their daily activities.” Id. at *20. As such, the Court held that the disparate factual and employment settings of the individual opt-in ASMs weighed in favor of decertification. Id. at *22.

The Court also found that the second factor weighed in favor of decertification, as the application of the defenses denied on each Plaintiff’s specific job duties, and Plaintiffs failed to establish that they were “similarly situated.” Id. at *22-23. Finally, as to the third factor, “[b]ased on the material disparities within and among the opt-in’s discovery responses and deposition testimonies . . . individualized defenses and credibility concerns would result in at least dozens of the type of ‘mini-trials’ that undercut the efficacy and fairness of a collective action.” Id. at *24. Thus, for the same reasons as the Court found in considering the first and second factors, the Court found that the fairness and procedural considerations weighed against proceeding collectively, and granted Vitamin Cottage’s Motion to for decertification. Id.

The Court’s Decision On The Motion For Rule 23 Class Certification

In denying Plaintiff’s Rule 23(b)(3) Motion for class certification, the Court conducted a “rigorous analysis” under both Rule 23(a) and 23(b)(3), relying, in large part, on its findings in granting Vitamin Cottage’s Motion for decertification of Plaintiff’s FLSA claim. For starters, the Court cited the seminal ruling of Walmart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011).

Here, Plaintiff sought to certify a class for his unpaid overtime claim under CWCA. The Court noted that relevant state exemptions are similar, but not identical, to the FLSA exemptions discussed in the context of a Motion for decertification, and therefore required a separate, fact-intensive inquiry into the daily activities of an employee.

In considering the issue of commonality under Rule 23(a) together with the requirement of predominance under Rule 23(b)(3), the Court focused on whether the questions of law or fact common to class members predominated over any questions affecting only individual members, such that a class action would be superior to other available methods for fairly and efficiently resolving the controversy.

The Court held that while Vitamin Cottage’s uniform exemption policy showed that it considered the employees to be similar to at least some degree, a blanket exemption policy does not eliminate the need to make a factual determination as to whether class members are actually performing similar duties in the context of a misclassification claim.

Relying primarily on the briefing and exhibits associated with the Motion for decertification and the executive exemption as an illustration, the Court likewise found there were disparities in putative class members’ “supervisory” duties and hiring and firing authority.

In discussing the final element of the executive exemption, the Court noted an important difference between the Colorado executive exemption and the FLSA executive exemption: Whereas time spent performing exempt duties is not a dispositive element under the FLSA exemption, the Colorado executive exemption expressly requires the employees spend a minimum of 50% of the workweek in duties directly related to the supervision in order to qualify as exempt. Based on the evidence (i.e., deposition testimony and written discovery), the Court held there were plainly material disparities among the class members regarding the degree to which their day-to-day duties as ASMs involved supervisory or management-related objectives.

The Court reasoned that these material disparities went to the heart of liability in this matter – whether the class members were classified properly. And for that reason, the question of exemption was not capable of class-wide resolution. It further opined that due to the centrality of this question in the context of this case, whether other issues in the matter were capable of producing class-wide answers did not matter, as those issues did not predominate over the individualized question of whether each ASM was properly classified under Colorado law.

Ultimately, the Court held that for the same reasons it granted Vitamin Cottage’s Motion for decertification, Plaintiff did not meet his Rule 23 burden by relying on Vitamin Cottage’s common policies and procedures or uniform job description for ASMs.

Implications For Employers

The decision in Levine precisely delineates the standards for decertification of FLSA actions and certification of state law corollary class action claims. It also highlights the symbiotic nature of its analysis of these actions in the misclassification context and the important role that discovery plays in driving the outcome.

The Levine decision provides helpful guidance for employers that general uniform policies and procedures, such as the exemption policy analyzed by the Court in this case, are not enough to show that putative class or collective action members are actually performing similar duties. In order to withstand the Court’s “rigorous analysis,” an employer’s written discovery, such as interrogatory answers, and deposition testimony of putative class or collective action members must reflect that the specific duties and responsibilities of the putative class or collective action members at issue are uniform across-the-board.

May 31, 2023June 26, 2023 by Class Action Defense

Federal Court Bars Job Applicant and Employee Lawsuits For Recreational Marijuana-Based Adverse Action in New Jersey, But Calls For Legislative Action

By Gerald L. Maatman, Jr., Brad A. Molotsky, and Gregory S. Slotnick

Duane Morris Takeaways: In Zanetich v. Walmart, Inc., Case No. 1:22-CV-05387 (D.N.J. May 25, 2023), a case of first impression, the Judge Christine O’Hearn of the U.S. District Court for the District of New Jersey found the New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act (“CREAMMA”), the 2021 law legalizing recreational marijuana use in the state, does not allow job applicants and employees to file lawsuits alleging adverse actions based on marijuana use. The ruling is a boon for employers across New Jersey, who will not face the possibility of private lawsuits filed by applicants and employees based on adverse employment actions by employers for their workers’ off-duty marijuana use. However, the victory may be short-lived, as the Court invited re-examination of the law by way of legislative amendment, enforcement guidance, or New Jersey state court clarity on application of the state’s common law “failure to hire” theory to claims under the CREAMMA.

Case Background

On January 21, 2022, the plaintiff applied for a job with defendants in the Asset Protection Department in one of defendants’ New Jersey locations. A few days after his January 25, 2022 interview, on January 28, 2022, defendants offered plaintiff the job, beginning on February 7, 2022, “subject to him submitting to and passing a drug test.” Id. at 2. Plaintiff alleged that at the time, the defendants had a Drug & Alcohol Policy that stated “any applicant or associate who tests positive for illegal drug use may be ineligible for employment,” which included marijuana. Id.

After plaintiff took a drug test on January 21, 2022 and tested positive for marijuana, he contacted defendants on February 10, 2022 for an update on his application. Two days later, defendants informed Plaintiff that his job offer would be rescinded. When plaintiff asked for the reason for this decision, he was advised it was because he had tested positive for marijuana.

On June 13, 2022, plaintiff filed a class action lawsuit on behalf of himself and others similarly situated asserting two claims, including: (i) violation of the CREAMMA; and (ii) failure to hire and/or termination in violation of New Jersey public policy.

The defendants filed a motion to dismiss the complaint, arguing that the CREAMMA does not provide a private right of action and that New Jersey common law does not recognize a cause of action based on an employer’s failure to hire. In response, the plaintiff argued that the CREAMMA provides for an implied private cause of action and that his common law cause of action was cognizable as both a wrongful termination and failure to hire.

The Court granted the defendants’ motion in its entirety, dismissing both claims.

The Court’s Ruling

The Court noted the parties agreed there is no explicit private cause of action in the CREAMMA and undertook a three-part analysis to determine whether the CREAMMA included an implied private cause of action.

First, the Court held that the CREAMMA’s focus was on regulating the manufacture, sale, and use of marijuana in NJ – not expanding employment rights for applicants and employees. However, it ultimately read the statute liberally to include plaintiff in the class of persons for whose special benefit the statute was enacted. This factor, the Court concluded, weighed in favor of an implied private cause of action.

Second, the Court looked to legislative intent. It reasoned that other employment statutes adopted by the NJ legislature, such as the Conscientious Employee Protection and the New Jersey Law Against Discrimination, explicitly provide for a private cause of action. The Court found that the other employment statutes also expressly provide for a remedy, and that the CREAMMA did not provide either, which weighed against a private cause of action. The Court opined that unlike the CREAMMA and the New Jersey Cannabis Regulatory Commission (“CRC”), cases from other states finding an implied private cause of action in similar employment-related provisions in other state’s medical marijuana statutes involved statutes that are distinct in that no agency or commission was created and tasked with enforcement of the statute. In other words, creation of the CRC and tasking it to handle all aspects of enforcing the CREAMMA differentiated New Jersey from the other states.

Third, the Court determined that the legislative scheme of the CREAMMA does not support an inference that it provides an implied private cause of action given its delegation of authority to the CRC to create regulations and enforce violations. As such, the Court dismissed plaintiff’s CREAMMA claim.

Finally, the Court held that New Jersey common law does not provide a cause of action for failure to hire, and that plaintiff was only offered a job subject to his passing a drug test; he was never employed by defendants. Since plaintiff was never employed by defendants, the Court concluded that he failed to state a wrongful discharge claim because a failure to hire claim cannot support a common law wrongful discharge claim under New Jersey law.

Implications Of The Decision

For the moment, businesses in New Jersey have a viable defense to individual or class action claims brought by recreational marijuana users for adverse actions taken against them due to their use. This includes the ability to rescind conditional job offers to applicants who fail a drug test for marijuana. However, the Court noted that its decision left the plaintiff without a remedy and rendered the language of the CREAMMA employment provision at issue “meaningless.” The Court called on the New Jersey legislature, the CRC, or the New Jersey Supreme Court to act. The Court even mapped out suggestions to allow workers to sue for remedial relief, including: (i) amending the law; (ii) adopting regulations allowing the CRC to enforce the provision; or (iii) issuance of a New Jersey Supreme Court decision finding it appropriate to depart from prior New Jersey common law rejecting failure to hire claims based on the CREAMMA’s statutory language. In fact, shortly after the Court published its opinion, plaintiff appealed the decision to the Third Circuit Court of Appeals. As a result, New Jersey-based employers should stay tuned to the appeal and proceed with caution before taking adverse action based on applicant or employee recreational marijuana use.

May 29, 2023 by Class Action Defense

Seventh Circuit Explains How “Unusual” Circumstances May Require Defendants To Pay Class Action Notification Costs

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Jeffrey R. Zohn

Duane Morris Takeaways: While the general rule is that a plaintiff in a class action bears the financial burden of notifying the class, that rule is not absolute. In some unusual circumstances, the district court may shift the burden of paying for class notice to defendants, according to the U.S. Court of Appeals for the Seventh Circuit. That unusual circumstance recently occurred in Bakov, et al. v. Consolidated World Travel, Inc., Case No. 21-2653, 2023 WL 3558175 (7th Cir. May 19, 2023). The Seventh Circuit explained that when a district court revisits class certifications decisions after it has determined liability, it may shift the financial burden of notifying the class to the defendant. In Bakov, the Seventh Circuit determined that the district court properly revisited class certification in light of a new law that effectively expanded the scope of the class and did not abuse its discretion when it required the Defendant to pay for class notification.

TCPA Background

Passed in 1991, the Telephone Consumer Protection Act (“TCPA”) was Congress’ response to “voluminous consumer complaints about abuses of telephone technology.” Mims v. Arrow Fin. Servs., LLC, 565 U.S. 368, 370-71 (2012). Specifically, the TCPA aimed to eliminate the onset of automated devices that played pre-recorded sales pitches at a rate well beyond what even the most efficient telemarketers could accomplish. In light of the rapidly evolving technology and clever attempts at bypassing TCPA restrictions, the federal government has amended the TCPA numerous time. For instance, in 2012, TCPA rules changed to require telemarketers to obtain consent before robocalling, to no longer allow telemarketers to use an established business relationship to avoid getting consent from consumers, and to require telemarketers to provide an automated opt-out mechanism during each robocall.

In the over 30 years since Congress enacted the TCPA, consumers continue to regularly file TCPA complaints with the Federal Communications Commission and class actions before federal courts across the country.

Case Background

In Bakov, Plaintiffs asserted that Defendant violated the TCPA by calling class members using pre-recorded voice messages, a practice the law expressly prohibits. Defendants employed a company based in India to call millions of people across the United States to offer them free cruises. The India-based agents would communicate by using a sound board with 47 pre-recorded prompts. Defendant paid that company a commission for each call that it successfully transferred to Defendant.

Judge Harry Leinenweber of the U.S. District Court for the Northern District of Illinois initially certified a class of people who resided in Illinois while denying a nationwide class. He held that the district court did not have personal jurisdiction over non-Illinois resident class members, pursuant to the Supreme Court’s opinion in Bristol-Myers Squibb Co. v. Superior Court of California, 582 U.S. 255 (2017). Shortly after this ruling, however, the Seventh Circuit issued a contrary ruling in Mussat v. IQVIA, Inc., 953 F.3d 441, 443 (7th Cir. 2020). In Mussat, the Seventh Circuit held that “the principles announced in Bristol-Myers do not apply to the case of a nationwide class action filed in federal court under a federal statute.” Bakov, at *1. This undercut the reasoning behind the district court’s decision to limit the class to Illinois residents. As a result, the district court re-opened that question and ultimately certified a nationwide class.

As is the case with any class action, under Rule 23(c)(3)(B), the new class members were entitled to notice and an opportunity to opt out. The district court held that Defendant was required to bear the costs of providing notice to the nationwide class because Defendant’s liability already had been established.

Defendant subsequently filed an interlocutory appeal on this issue to the Seventh Circuit.

Seventh Circuit Ruling

The Seventh Circuit succinctly summarized the issue before it — what authority do district courts have to impose the cost of class notice on a defendant that already has been found liable to the class? In most circumstances, it explained, none. However, under the “unusual” circumstances of this case, the Seventh Circuit held that the district court did not abuse its discretion when it assigned class notice costs to Defendant.

The difference between this unusual case and the more typical class action is that, here, after certifying the class and proceeding to the merits, the law changed in a way that expanded the class. The district court revisited the issue and enlarged the size of the class consistent with the new law. As a result of the atypical order of ruling on the class and the merits, the Seventh Circuit opined that the district court did not abuse its discretion in holding that the Defendant must bear the cost of notice to the class.

Ordinarily, the rule is that a plaintiff must initially bear the cost of notice to the class because “it is he who seeks to maintain the suit as a class action and to represent other members of his class.” Id. at *2. However, this ordinary rule leaves room for district courts to tailor the allocation of costs to the specifics of a case. Each case must be assessed on its own.

The Seventh Circuit reasoned that the facts presented to the court in this case are the precise reasons why the ordinary rule is not an absolute rule. Here, the district court had made its liability determination after it had a certified a class of Illinois residents, but before class certification and the necessary notice had been given to the non-Illinois class members. While rare, a district court may revisit class certification decisions after it has determined liability. In these situations, a district court has the discretion to shift notice costs to defendants, as it did here.

Implications For Corporate Defendants

The Bakov decision is an important reminder that the law is not static. While very few cases will ever have to deal with this precise issue, it is likely that the law will change in a material way during the pendency of an ongoing matter. For that reason, it continues to be important for all companies facing class action litigation.