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.
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.
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.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associate Nick Baltaxe with their analysis of settlement approval issues highlighted in class action litigation of 2022.
Episode Transcript
Jerry Maatman: Hello blog readers and thank you for welcoming us this week. I’m joined by my colleague and associate Nick Baltaxe and today we’re going to talk about settlement approval in the class action context. Nick, thanks so much for joining us on this week’s podcast.
Nick Baltaxe: Thank you for having me Jerry, you know it’s always a pleasure.
Jerry: Well, Rule 23 does many things and one of the things that regulates is the process by which a court must approve a settlement. In general litigation I think probably 98% of cases are disposed of either in motions to dismiss or by settlement. What about in the class action context – how are cases handled and how do they exit the court system?
Nick: So similarly, there’s very rarely trials to verdicts in the class action context. The reason for that is trials are not just very financially expensive in terms of legal fees, but present a large amount of financial exposure and a large possibility of an adverse verdict that could be very, very financially harmful and present unacceptable risks. So because of those risks, class actions are typically resolved before or on the heels of class certification order. As you stated, Rule 23 not only provides a process for the certification of a class action, but also provides the procedure for the settlement of the class action. Specifically, Rule 23(e) lays out a three-part settlement approval process that includes preliminary approval, which is approval that provides notice to the putative class, notice the class members, and finally, final settlement approval.
Jerry: Well, our Duane Morris Class Action Review has a chapter in and of itself with respect to key settlements as well as settlement approval issues, and as general counsel that I deal with often say, ‘if I’m going to settle a class action I only want to settle it once, I want a broad settlement bar’ – what are some of the positive attributes or reasons to settle a class action?
Nick: Yes, so there’s benefits to both sides of the aisle for settling these class actions on an early basis. From the plaintiffs’ point of view and a reason that you see a lot of plaintiffs’ attorneys and plaintiffs being willing to settle these sorts of cases at an early stage – you get payment quicker and even with the class approval, the class settlement approval process – that can take a longer period of time, so you want plaintiffs generally want to settle this on an early side so that they can get the money quicker. However, on the side of the employers, of the defendants, as indicated before getting the trial in these cases is usually a very expensive process in terms of legal fees, so settling early avoids the high costs including all the burdensome discovery related costs that come from having to defend class actions that you don’t see in other non-class related litigation. You also see benefits to the court system by avoiding needless litigation that clogs court dockets, especially in the context of these class actions or these cases, depending on the size of the putative class and issues with manageability and other class certification issues can take multiple weeks. Additionally, although class action settlements are matters of public record, they generally contain provisions where a defendant will not admit liability, which can also be positive for the publicity for that defendant. Finally and importantly, a settlement will bar anyone who is in that class and receives remuneration – in other words, does not opt out – from bringing claims, and those settlements can be crafted to be as broad as possible to eliminate as many claims assuming that the named plaintiff is agreeable and the court approves.
Jerry: Thank you for that overview of the process. Chapter 20 of the Duane Morris Class Action Review analyzes the significant settlement approval decisions rendered in state and federal courts. Briefly based on your analysis and review of an array of those decisions, what are some of the common obstacles or objections that judges in reviewing class action settlements focus upon in terms of issues where settlements are not approved?
Nick: In order to secure the court’s approval to send notice to the class regarding that settlement, there must be sufficient information provided to the court in order to determine whether or not it will be likely to approve the settlement and certify the class purely for the purpose of the judgment. Rule 23(e) itself actually includes a detailed list of factors that must be considered before the final approval of the class settlement. Those factors include things like the quality of class representation, whether the negotiations took place at an arm’s length, the adequacy of class relief, and the equitable treatment of class members. So you’ll see a lot of discussion on whether or not the negotiations were fair, whether the agreed-upon number provides proper relief for all the class members, and those are some of the bigger obstacles that you’ll see facing approval and also mostly the reasons that a court is going to push back and not approve of a proposed class action settlement.
Jerry: I think one of the common myths in the class action space is that once you settle the class action, it’s pretty much a rubber stamp approval process – and I think nothing could be further from the truth. The law is different in every jurisdiction and the practice locally is different in front of every court, but if there is one trend it seems to me that in California, more so than in any other geographic venue, judges are very strict in reviewing class action settlements and are more apt to deny approval probably than in any other jurisdiction. What does this mean overall for both plaintiffs’ counsel and defense counsel in terms of the practice, of how they craft a settlement, what it should look like, and how it’s presented to a court?
Nick: So the settlement process being as non-rubber stamped as it is and a court-by-court basis applying these standards on non-identical fashions presented a lot of strategic dilemmas for both parties when they’re crafting a settlement agreement. For example, for a defendant you have to consider how much you’d be willing to concede in the settlement agreement without losing your ability to defend the case to the extent the settlement falls through or the settlement is not approved by the court. You also have to consider if a settlement is going to be viewed as not sufficient – potentially too cheap by a court or deemed inadequate or unfair when reviewed and considering all of the putative class members, and also as indicated, you have to consider how broad you attempt to make the release. It is a strategic positive for a defendant to make as broad of a release as possible, secure as much protection for class claims coming from those class members, but too broad of a release might get push back from the court.
We saw a lot of these issues in a more recent case that has been continuing to develop over the past few months which was Lusk, et al. v. Five Guys Enterprises LLC, et al. As you indicated, in California there seems to be a very stringent class action approval process. In the Eastern District of California, Lusk v. Five Guys is now on its fifth attempt to have class certification approved from that district court; they had chances in December 2019, October 2020, June 2021, and in a recent denial in 2022 the court looked at things such as the willingness to pay one million dollars to settle claims that it’s discredited in its briefs as a perverse set of circumstances, the court looked to cautiously and rigorously scrutinize the attempt to settle the class action, and even warned the parties to carefully consider how they would like to proceed before fighting another notion of this kind, and it would not consider a new motion that merely tinkers with the same details that the previous motions have already presented. So as indicated by you know this rule and as you mentioned with California, it’s a strict process, it’s not a very simple rubber stamp – you don’t see most cases get to a fourth or a fifth go around, but you do see courts really scrutinize what the parties are bringing forward in their class action approval motions.
Jerry: That’s a fascinating case and case study, it reminds me of kind of the counter-intuitive notion that defense counsel is bargaining for the lowest possible settlement, and that’s true, but also the lowest possible settlement that a court will approve and kind of evidence of that is the famous or infamous, depending on how one looks at it, Facebook BIPA settlement where the parties presented a $550 million settlement to the court and the court said ‘that’s inadequate, that’s a not enough of a payment to the class,’ and sent them into the room so to speak to renegotiate the deal, and months later the deal was sweetened is $650 million and then the court approved it. So certainly not a rubber stamp process and certainly there are situations where a court may force the parties back to the negotiating table to change, sweeten, revise the deal to the extent the court may feel it’s unfair.
Another area of concern is not the plaintiffs’ lawyer or the named plaintiff, but class members who may register an objection, and there is a process in Rule 23 for the court to undertake and hear and rule upon objections to class action settlements. How does that work in this space?
Nick: So objections are very common in the class action settlement sphere and on certain occasions objections can even be successful in overturning the settlement or getting it vacated on appeal. One really interesting example from the last year was Saucillo, et al. v. Peck. In that case plaintiffs brought a class action and representative claim under PAGA based on different alleged violations of the California Labor Code. Several years of litigation passed and the parties reached a settlement. The district court overruled the objection of an objector who had filed a separate PAGA claim in a different case but was not a party to the underlying PAGA claim. In this decision Ninth Circuit opined that the objector had no right to appeal in the action to which he was not a party. However, with respect to the class action settlement at issue in the appeal, a different objector argued that in evaluating the proposed pre-certification settlement the district court erroneously applied a presumption of fairness. The district court considered that the parties engaged in an arm’s length, serious, informed, and non-conclusive negotiation, both counsels were experienced and knowledgeable, and therefore applied a presumption of fairness. However, the Ninth Circuit reasoned that in the pre-certification context the district court should have employed a higher standard of fairness and put in a more probing inquiry into what would normally be required under Rule 23(e). It remanded the case for further proceedings based on that language.
Jerry: Another area of concern are attorney’s fees, where the court in the final approval hearing has to adjudicate the petition for attorneys’ fees and award of costs filed by class counsel, and this is an area where there are both objections and where courts want to make sure that plaintiffs’ counsel are not getting rich off the backs of the class, and they tend to be very noteworthy rulings where a court will measure the lodestar and the amount of hours and fees that go into the class action settlement. In terms of the past 12 months were there are some notable rulings in this space that would bear upon ideas about how to negotiate settlements?
Nick: Attorneys’ fees awards and the requests that come with them are heavily scrutinized in the class action context, not only because of the money that’s at risk but because of the fairness that underlies the entire class action settlement process. This sort of calculation in the request for attorneys’ fees will often lead to very heavy-handed disputes especially when they come at the end of an already hard-fought class action with the settlement at risk. Nonetheless, you see a lot of class counsel attempting to recover for their time attributable and leading to disputes that, as you said, come quite often to these sorts of cases.
One of the most recent ones was found in the Fifth Circuit in Fessler, et al. v. Porcelana Corona De Max, S.A. This was a punitive class of consumers who sued for Porcelana, who was a toilet manufacturer, for providing or in manufacturing the detective toilet tanks. They settled the case in two parts, first entering into a partial settlement over certain models that Porcelana manufactured in a specific plant, the Benito Juarez plant, between 2007 and 2010. At this point the plaintiffs sought to certify the claims that were not settled and the district court denied the motion. The parties then subsequently reached a class-wide settlement agreement for the second portion and filed a motion for an awards of attorneys’ fees for the two classes. Porcelana then challenged the amount sought, arguing that the recovery by plaintiffs’ counsel should be limited to the hours spent on behalf of the successful class claims only. The district court granted that motion, finding it “practically impossible” to identify which hours should be removed from the attorneys’ fee award and be allocated to either one class claim or the other class claim. Instead, it simply reduced the lodestar amount that it was going to award to the attorneys. Upon appeal by Porcelana, the Fifth Circuit reversed the district court’s order on the fee award. It held that specifically when attorneys’ fees requested by class counsel is supported by time spent on both successful and unsuccessful claims, the district court “must address the ‘common core of facts’ and the ‘common legal theories’ sufficiently so that no fees are awarded on unsuccessful theories.” The Fifth Circuit therefore vacated the attorneys’ fee award and remanded the case back to the district court to “consider the amount of damages and non-monetary relief sought compared to what was actually received by the class.” So a case like this goes to show that even in an approved settlement the attorneys’ fees can be a point of dispute and that parties have to very seriously consider what could be attributed to successful class claims, what could be attributed to non-successful class claims, and how those sorts of splits could potentially lead to significant disputes in the class action settlement approval processes.
Jerry: Those are great insights from the Fifth Circuit. I know that a lot of people are sometimes unaware that actually in California in the Ninth Circuit, the benchmark and attorneys’ fees is 25% and in many areas of the country they’re 33% and there are some instances where courts have awarded 35% up to 40% or 42% percent, so location, location, location is everything when it comes to settlement approval, as well as awards of attorneys’ fees.
Well, thank you Nick for joining us on this week’s podcast, the Class Action Weekly Wire, and signing off for Nick and myself – Jerry Maatman here at Duane Morris. Have a great day.
By Gerald L. Maatman, Jr., Gregory Tsonis, and Brittany Wunderlich
Duane Morris Takeaways: On August 21, 2023, Judge Barbara Rothstein of the U.S. District Court for the Western District of Washington granted the EEOC’s motion for reconsideration, reversing its decision granting summary judgment to defendant Telecare Mental Health Services of Washington, Inc.’s (“Telecare”) in a disability discrimination case entitled EEOC v. Telecare Mental Health Services of Washington, Case No. 2:21-CV-1339 (W.D. Wash. Aug. 21, 2023). Despite giving the EEOC multiple opportunities to submit evidence rebutting Telecare’s argument that the claimant was not qualified for the position to which he applied, and the EEOC’s failure to do so prior to its motion for reconsideration, the Court ultimately found from the EEOC’s belated evidence that a disputed material fact existed that must be resolved by a jury. The ruling demonstrates the difficulty in achieving summary judgment in an discrimination case, as well as the reluctance of courts to bar discrimination claims entirely. For employers handling EEOC litigation, this ruling is instructive, as successful motions for reconsideration are rare, and reversals of summary judgment even rarer.
The court noted that when ruling on Telecare’s motion for summary judgment, it gave the EEOC multiple opportunities to submit evidence rebutting Telecare’s argument that the claimant was not qualified for the position in which he applied. The court further chastised the EEOC for submitting such evidence for the first time in its motion for reconsideration, calling the EEOC’s failure “particularly egregious.” Despite the EEOC submitting such evidence for the first time in its motion for reconsideration, the district court ultimately reinstated the claimant’s claim after finding that an issue of material disputed fact existed.
Case Background
In 2019, claimant Jason Hautala applied for a position as a registered nurse at a Telecare facility that assisted the mentally ill. While Telecare extended an offer of employment to the claimant, the offer was conditioned on the requirement that Hautala pass a physical examination to determine his fitness for the position. Telecare ultimately rescinded its offer because the claimant had a permanent leg injury, which made him unable to perform the basic functions of a registered nurse.
The EEOC filed suit on behalf of Hautala under the Americans with Disabilities Act (ADA) claiming that Telecare discriminated against him because of his disability. Telecare moved for summary judgment, arguing in part that Hautala was not a “qualified individual” for the position under the ADA based on comments he made that reflected a negative attitude towards the mentally ill. Telecare alleged Hautala made statements including “in my youth, I used to enjoy a crazy person takedown, but as I get older, I enjoy these things less and less” and “fighting off meth heads isn’t as much fun in my 50s as it was in my 30s.” Id. at 3. In support of its motion, Telecare submitted evidence that compassion toward patients with mental illness was an essential job function, and that Telecare would not hire someone who referred to patients as “crazy” or “meth heads.” The EEOC, in its opposition brief, failed to address Telecare’s argument or offer any contrary evidence.
The Court gave the EEOC a second chance to present evidence rebutting Telecare’s argument, requesting supplemental briefing on Telecare’s argument that Hautala was not a “qualified individual” for the position. Despite the second opportunity to rebut Telecare’s position, the EEOC offered no contrary evidence and argued only that the comments, “as after-acquired evidence, could not be considered as a post hoc justification” for Telecare’s failure to hire Hautala. Id. at 4.
Accordingly, the Court granted Telecare’s motion for summary judgment, holding that the EEOC failed to allege facts sufficient to support its prima facie case of discrimination under the ADA. In particular, the Court found that the claimant was not a qualified individual for the nursing position he applied for given Telecare’s undisputed evidence that Hautala had made the “troubling” and “inappropriate” comments, that compassion for patients suffering from mental illness was a necessary qualification for the position, and that the comments “conclusively demonstrated a lack of such compassion.” Id.
The EEOC’s Motion For Reconsideration
The EEOC subsequently filed a motion for reconsideration of the summary judgment ruling in Telecare’s favor. In doing so, the EEOC for the first time provided evidence that Telecare was aware of Hautala’s views towards the mentally ill, and argued that a material issue of fact required reinstating Hautala’s ADA claims.
The EEOC contended that it was entitled to reconsideration because subjective criteria (i.e., whether the claimant possessed the requisite compassion for the job) could not be considered as part of its prima facie case. In rejecting this argument, the Court found the McDonnel Douglas burden-shifting framework inapplicable because Telecare admitted it did not hire Hautala based upon his disability, nor was the subjective criteria at issue “hotly contested” like the criteria in the EEOC’s cited precedent.
However, the Court found the EEOC’s second argument for reconsideration more convincing. The EEOC argued that there was a disputed issue of fact as to whether Telecare knew of the claimant’s view on mentally ill patients during the application process, thereby contradicting Telecare’s argument that Hautera’s comments were disqualifying for the position. The EEOC submitted as evidence an email from Telecare’s employees following Hautera’s interview in which they acknowledged Hautera’s comments, but nonetheless “advanced Hautala in the application process.” Id. at 9. As a result, in order to “avoid the potential for manifest error” and “in the interests of justice,” the Court concluded that summary judgement on the issue of whether Hautala was a qualified individual was not appropriate and that “[d]enying Claimant Hautala a chance to have his substantive disability discrimination claims heard based on the EEOC’s failure to timely present the issue is a potential injustice that is easily avoided.” Id. The Court, however, made clear that it was “not absolving” the EEOC “of its obligation to prove that Hautala was a qualified individual with a disability,” only that a factual dispute exists as to whether Telecare “would actually have considered the comments disqualifying.” Id. at 10.
Though the Court ultimately reinstated the EEOC’s claim, Judge Rothstein chastised the EEOC for not citing this evidence in its summary judgment briefing, noting that the EEOC’s failure to cite to such evidence was “particularly egregious” given that the Court gave the EEOC a second chance to do so. Noting that the parties filed over 1,000 pages of exhibits in support for their motions, the Court chastised the EEOC for failing to cite the evidence in its summary judgment briefs and noted that “[j]udges are not like pigs, hunting for truffles buried in briefs’ or on the record.” Id. at 9.
Implications For Employers
This decision demonstrates the reluctance of courts to bar discrimination claims asserted by the EEOC even after severe and “egregious” missteps in litigation. This latitude afforded to the EEOC, coupled with the resources available to the government in EEOC-initiated actions, requires close coordination with experienced counsel to defeat discrimination lawsuits at the pleading stage. Employers faced with such claims should work closely with their counsel to ensure a comprehensive litigation strategy that maximizes the potential for defeating claims before the necessity of going to trial.
By Gerald L. Maatman, Jr., Alex W. Karasik, and George J. Schaller
Duane Morris Takeaways: On August 22, 2023, the EEOC announced the approval its Strategic Plan (“SP”) for Fiscal Years 2022-2026. The Strategic Plan can be accessed here. The SP furthers the EEOC’s mission of preventing and remedying unlawful employment discrimination and advancing equal employment opportunity for all. The SP focuses on: (1) Enforcement; (2) Education and Outreach; and (3) Organizational Excellence. The SP also provides performance measures for each strategic goal. For corporate counsel involved in employment-related compliance and EEOC litigation, the new SP is required reading.
The EEOC’s Strategic Priorities
Enforcement
The EEOC continues to promote equitable employment initiatives through its enforcement authority. The SP highlights the EEOC’s primary mission of preventing unlawful employment discrimination through its administrative and litigation enforcement mechanisms, and adjudicatory and oversight processes. The main strategic focus for employing these mechanisms is through fair and efficient enforcement based on the circumstances of each charge or complaint while maintaining a balance of meaningful relief for victims of discrimination.
As to enforcement, the SP provides a broad overview of the EEOC’s efforts to allocate its resources to ensure its efforts in stopping unlawful employment discrimination. To that end, the EEOC indicates that it will continue its targeting of systemic discrimination through training staff on systemic cases and devoting additional resources to systemic litigation enforcement. The SP included several performance measures for achieving enforcement goals, including measures on conciliation and litigation resolution, favorably resolving lawsuits, and increasing capacity for systemic investigations.
Education and Outreach
The SP prioritizes education and outreach for deterring employment discrimination before it occurs. The SP focuses on providing education and outreach programs, projects, and events as cost-effective tools for enforcement. Primarily these programs are aimed at individuals who historically have been subjected to employment discrimination. Part of the EEOC’s education and outreach involves expanding use of technology through social media, ensuring the EEOC website is more user-friendly and accessible, and leveraging technology to reach the agency’s audience.
These efforts to improve on 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. The SP provides an in-depth list of measuring education and outreach by utilizing technology to expand the EEOC’s audience and ensuring accessible delivery of information through events, programs, and up-to-date website accessibility and functionality.
Organizational Excellence
The SP makes clear that organizational excellence is the cornerstone of achieving the EEOC’s strategic goals. The SP confirms that the EEOC aims to improve on its culture of accountability, inclusivity, and accessibility. In addition, the EEOC seeks to continue protecting the public and advancing civil rights in the workplace by ensuring its resources are allocated properly to strengthen intake, outreach, education, enforcement, and service.
The EEOC’s organizational excellence strategic goal has two prongs, including improving the training of EEOC employees and enhancing the EEOC’s infrastructure. For employees, the EEOC seeks to foster enhanced diversity, equity, inclusion, and accessibility in the workplace, maintain employee retention, and implement leadership and succession plans. Relative to the agency’s infrastructure, the SP embraces the increased use of technology through analytics, and management of fiscal resources promote the agency’s mission of serving the public.
Implications For Employers
The EEOC’s SP is an important publication for employers since it previews immediate action areas. The SP’s focus on systemic discrimination, conciliation, and litigation, and increasing the Commission’s capacity for litigating alleged systemic violations shows the EEOC is ramping up to improve handling all aspects of charges. The EEOC’s increased focus on technology and employment discrimination awareness similarly shows accessibility will continue to be a pillar of the agency. Accordingly, prudent employers should be mindful of these strategic priorities, and prepare themselves for continued EEOC enforcement.
By Gerald L. Maatman, Jr., Zachary J. McCormack, and Emilee N. Crowther
Duane Morris Takeaways: In Nelson v. Experian Information Solutions, Inc., No. 4:21-CV-894, 2023 WL 5284831 (N.D. Ala. Aug. 16, 2023), Judge Corey L. Maze of the U.S. District Court for the Northern District of Alabama granted Defendant Experian Information Solutions, Inc.’s (“Experian”) Motion for Summary Judgment, and denied as moot Plaintiff’s Motion for Class Certification. Judge Maze reasoned that summary judgment was appropriate because it was not objectively unreasonable for Experian to believe it was not required to reinvestigate the accuracy of Nelson’s name, addresses, and social security number (“SSN”) on her credit report under Section 1681i of the Fair Credit Reporting Act (“FCRA”). This ruling not only provides guidance into the duties of Credit Reporting Agencies (“CRA”) in the Eleventh Circuit to conduct “reasonable reinvestigations” of “the completeness or accuracy” of items on an individual’s credit report, but also demonstrates how an effectively timed summary judgment motion can preclude class certification.
Case Background
Experian is a multinational data analytics and CRA company that collects and aggregates credit information for millions of individual consumers and businesses. Nelson discovered inaccuracies in her Experian credit report, namely, that her maiden name was misspelled, two addresses that were not hers were listed on her report, and the last digit of her SSN was incorrect. Nelson made three attempts to contact Experian to correct the inaccurate information, and even though Experian removed all of the inaccurate information aside from one address (associated with an open credit account), Experian did not inform Nelson, or the furnishers of the information, that the inaccurate information had been removed. Thereafter, Nelson filed a class action against Experian in 2021 for negligent and willful non-compliance with the FCRA.
Following discovery Experian moved for summary judgment against Nelson under several theories, including: (1) it accurately reported the inaccurate information it received; (2) it did not cause Nelson’s injury, if any; (3) 15 U.S.C. § 1681i’s reinvestigation requirement does not apply to personal identification information; and (4) Experian is not liable for its employees’ unauthorized acts. Nelson concurrently moved for class certification under Rule 23.
The Court’s Decision
The Court denied Nelson’s motion for class certification. Instead, it granted Experian’s motion for summary judgment.
The FRCA’s Reinvestigation Requirement
Section 1681i of the FRCA requires a CRA to conduct a reasonable reinvestigation only if a consumer disputes “the completeness or accuracy of any item of information contained in a consumer’s file.” 15 U.S.C. § 1681i. Both Nelson and Experian agreed that the Court must grant summary judgment if it found 15 U.S.C. § 1681i imposed no duty on Experian to reinvestigate Nelson’s dispute over inaccurate personal identification information.
Nelson asserted “any item of information contained in a consumer’s file” included, at the very least, her name, address, and SSN, because the term “file” as defined by the FRCA includes “all of the information on that consumer recorded and retained by a [CRA].” Id. at 5; 15 U.S.C. § 1681a(g). However, Experian countered that the FRCA’s disclosure provision requires CRAs to disclose six categories of information if requested by the consumer, including the first category of “all information in the consumer’s file.” Id.; 15 U.S.C. § 1681g(a). Experian argued, and the Court agreed, that Congress’ addition of five subcategories of information after the broad phrase “all information in the consumer’s file” established that “Congress did not literally mean all information in the consumer’s file when it defined ‘file’ to mean ‘all information in the consumer’s file.’” Id. at 6.
Experian further argued that under 15 U.S.C. § 1681a(g), the word “any” in “any item of information contained in a consumer’s file” is limited to information that might be, or has been, furnished in a consumer report. Id. at 6-7. Since personal identification information like a consumer’s name, address, and SSN do not bear on an individual’s creditworthiness, Experian contended that such information did not itself constitute a credit report. Id. at 7. The Court disagreed with Experian’s argument. It held that the FRCA’s plain language and canons of construction “forbid the use of credit worthiness as the limitation on information contained in both the consumer’s credit report and the consumer’s file.” Id. at 8.
Ultimately, the Court found that, according to 15 U.S.C. §§1681c(h), 1681g(a)(1), and 1681u, names, addresses, and SSNs fit within the phrase “any item of information contained in a consumer’s file,” and Experian thus had a duty to reinvestigate the accuracy of Nelson’s name, addresses, and SSN when Nelson filed a direct dispute under that provision. Id. at 9-10.
Reasonable Belief
The Court noted that the existence of a duty to reinvestigate “is not enough to prove a violation of the FCRA” — Nelson also had to establish that Experian either negligently or willfully failed to satisfy its duty to reinvestigate by showing that Experian’s interpretation of the FCRA was objectively unreasonable. Id. at 10; see also, Safeco Ins. Co. of America v. Burr, 551 U.S. 47, 68-70 (2007).
Experian argued that its understanding of 15 U.S.C. § 1861i counseled that disclosures and reinvestigations should be limited to information that bared on the consumer’s credit worthiness. In support of its position, Experian pointed to two federal circuit opinions, as well as regulations from the Consumer Financial Protection Bureau and the Federal Trade Commission, all establishing that the term “file” should only contain what was included in a consumer report.
Considering no case law told Experian that its interpretation was wrong, and other circuits’ precedent and CFPB and FTC regulations suggested that Experian could be right, the Court ruled that no jury could find that Experian negligently or willfully violated the FCRA, and that Experian’s interpretation of the FCRA was objectively reasonable.
Implications For CRAs
This ruling provides guidance for CRAs regarding how the Eleventh Circuit will treat “reasonable reinvestigations” of “the completeness or accuracy” of items on an individual’s credit report. Considering Experian’s favorable ruling precluded class certification, Experian avoided expensive litigation and numerous claims involving issues similar to Nelson’s class action. Considering this is the first case of its kind, other federal courts may take note in FCRA class actions.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associate Ethan Feldman with their analysis of key trends in product liability / mass tort class action litigation in 2022.
Episode Transcript
Jerry Maatman: Welcome loyal blog readers to our Friday series of podcasts, the Class Action Weekly Wire. I’m Jerry Maatman, partner at Duane Morris, and joining me today is my associate Ethan Feldman, and we’re here to talk about products liability and mass torts. Welcome, Ethan.
Ethan Feldman: Great to be here. Thank you for having me, Jerry.
Jerry: I’ve read somewhere in various accounts that 2022 was a phenomenal incredible year for the class action space when it came to products liability and mass torts. How would you sum up what happened in the last 12 months?
Ethan: It’s definitely been busy – it always is. Last year we saw a lot of settlements in the opioid arena, they totaled around $50 billion – that’s with the B billion – due to a bunch of multi-billion dollar settlements coming out of multi-district litigations. A lot of the lawsuits were brought by state and local governments against the manufacturers and distributors. One of the main players in there was Purdue Pharma, the manufacturer of OxyCotin. That entity agreed to pay $12 billion in settlements. A the end of May 2023, the Second Circuit approved a plan under the under which the Sackler family – the owners of Purdue Pharma – actually would give up ownership of the company and contribute $11.5 billion in cash over time to distribute to a fund to prevent and treat addiction. Of those funds $750 million is slated to go to individual victims and payouts are expected in the range of about $3,500 to $50,000. The retailers were also involved – CVS, Walgreens, and Walmart agreed to settle their claims for about $14 billion with the state and local governments. Oher manufacturers, Teva and Allergan, reached settlements not to exceed $4.25 billion and $2.37 billion, paid out over 13 years. Some other distributors involved McKesson, Cardinal Health, Amerisource Bergen, agreed to pay not more than $20 billion over 18 years. There were also 40 states that have their own specific agreements about apportionments between state and local counties that have opted into the settlement – they’re all very different, the general theme is that
it’s determined by population, that’s how the apportion is going to be governed.
Jerry: Absolutely eye-popping numbers. To my way of thinking, the only analog in the recent American jurisprudence would be two decades ago when attorneys general settled big tobacco product liability and mass tort case cases. So is there anything left or are we going to continue to see the tale of opioid litigation settlements in 2023?
Ethan: I think there’s going to be some more in 2023 there’s a website Opioidsettlementtracker.com which reports that there’s some settlement amounts between U.S. governments – not federal, the state and local like I talked about, so I think we’re going to start to see some of some of those come to fruition in 2023.
Jerry: Really quite a story and a headline for 2022 and 2023. For our listeners could you articulate in the class action space the difference between uh product liability as opposed to mass torts and how they’re different and how uh they’re they are related?
Ethan: So they’re definitely related but they’re also very different. Generally if you take the sphere of product liability, you can divide that up into two categories. There’s the injury claims and then there’s the labeling claims, you can also think of the labeling claims as false advertising. The injury claims are best suited for the mass tort actions and the labeling claims more so lead to class actions. The injury mass tort actions usually can’t satisfy the Rule 23 evidentiary requirements or the similar state procedural laws for that matter just due to the individualized nature of plaintiff-specific circumstances that require individual proof of the injury. For example, you get a mass tort action that you know plaintiffs claim they took a medication that causes all different kinds of cancers, those individual claims would require different types of proof that would likely prevent class certification. Those types of claims are often are defeated at the at the class certification stage, you know they do lend themselves however to multi-district litigation and other coordinated proceedings that you can find in the states that involve the same products, same descendants, and the same set of operative facts.
Jerry: That’s a great description of both the differences and the relatedness of them. When I teach my law class at Northwestern, the kind of the theme of a class action is the ability to put one person on the stand they tell their story and it transposes to everyone else, and when you’re dealing with mass torts and personal injury claims everybody’s damages tend to be different although those cases tend to be ripe for issue certification where liability issues might be dealt with on a class-wide basis but injuries in individual hearings. You mentioned MDLs, or multi-district litigation, could you explain for our listeners the role that MDLs have in this space?
Ethan: So, in 2022 the JPML – the Judicial Panel on Multi-District Litigation – reported there are 172 pending MDLs across the country. 21 of those had over 1,000 pending actions, and another 24 of them had 100 and 1,000 actions. The biggest was the 3M ear plug litigation, which had over 250,000 claimants. MDL proceedings make up roughly 50% of all the federal dockets. So the MDL actions can often, like we spoke about, contain the individualized product claims distinct from the class claims. For example, in addition to the class claims there’s current litigation over nicotine products which has a personal injury aspect of it, which include allegations that exposure to nicotine can alter brain development.
Jerry: You know, that the 3M ear plug litigation got a lot of play in the media last year. Could you explain for our listeners what’s going on in that MDL?
Ethan: That MDL called In Re 3M Combat Arms Earplug Products Liability Litigation is currently pending in the United States District Court in the Northern District of Florida. There’s been a bunch of bellwether trials there, the verdicts were all over the place. We saw a plaintiff verdict for $77 million and you also see defense verdicts. That docket has you know over 3,500 filings, it was initially formed in 2019, and has even seen recent transfers into the MDL today four years later. Right now those proceedings are stayed due to bankruptcy filed by a defendant that was acquired by 3M during the manufacturing of the earplugs that are at issue, plaintiffs of course want to lift the stay for certain claims that don’t involve that defendant. That master long-form complaint actually contains 16 different causes of action, violations of states consumer protection laws, but the main point of the complaint is that defendants knew the earplugs were defective, made statements that misrepresented their effectiveness, and relying on those misrepresentations – the plaintiffs use the earplugs and develop the hearing disorders because of that. There’s also accounts for negligence and strict liability under a design defect series as well.
Jerry: Well, thanks for that cogent description. What are other hot areas in the products liability and mass tour arena? I gave a presentation at a class action conference last month in New York, a two-day conference, and day two was all about what was called the Camp Lejeune mass tort litigation in terms of uh what’s going on in the Eastern District of North Carolina – would that be an area that our listeners should look to in 2023 for big developments in this space?
Ethan: Yeah, absolutely. I think you’re referencing to PFOA litigation – I’m going to do my best to pronounce it – perfluorooctanoic acid, it’s very well known as PFOA litigation. These are used in a wide variety of products, they’re often called forever chemicals because they take a long time to decompose. There’s types of lawsuits that defendants should have known that the PFOAs have the potential to cause bodily injury and there’s also been several lawsuits brought on behalf of states by the Attorneys General for water contamination and things like that. There’s always going to be pharmaceutical litigation and medical device litigation, but the hotbed right now seems to be the PFOA litigation.
Jerry: These are great insights and analysis, Ethan. Thank you very much for joining us on the Class Action Weekly Wire, and to our loyal blog listeners thank you for tuning in to our Friday podcast. Have a great day.
By Alex W. Karasik, Gerald L. Maatman, Jr. and George J. Schaller
Duane Morris Takeaways: InEqual Employment Opportunity Commission v. ITutorGroup, Inc., et al., No. 1:22-CV-2565 (E.D.N.Y. Aug. 9, 2023), the EEOC and a tutoring company fileda Joint Settlement Agreement and Consent Decree in the U.S. District Court for the Eastern District of New York, memorializing a $365,000 settlement for claims involving hiring software that automatically rejected applicants based on their age. This is first EEOC settlement involving artificial intelligence (“AI”) software bias. As we previously blogged about here, eradicating discrimination stemming from AI software is an EEOC priority that is here to stay. For employers who utilize AI software in their hiring processes, this settlement highlights the potential risk of legal and monetary exposure when AI software generates hiring decisions that disparately impact applicants from protected classes.
Case Background
Defendants iTutorGroup, Inc., Shanghai Ping’An Intelligent Education Technology Co., LTD, and Tutor Group Limited (collectively “Defendants”) hired tutors to provide English-language tutoring to adults and children in China. Id. at *3. Defendants received tutor applications through their website. The sole qualification to be hired as a tutor for Defendants is a bachelor’s degree. Additionally, as part of the application process, applicants provide their date of birth.
On May 5, 2022, the EEOC filed a lawsuit on behalf of Wendy Pincus, the Charging Party, who was over the age of 55 at the time she submitted her application. The EEOC alleged that Charging Party provided her date of birth on her application and was immediately rejected. Accordingly, the EEOC alleged that Defendants violated the Age Discrimination in Employment Act of 1967 (“ADEA”) for programming its hiring software to reject female applicants over 55 years old and male applicants over 60 years old. Id. at *1. Specifically, the EEOC alleged that in early 2020, Defendants failed to hire Charging Party, Wendy Pincus, and more than 200 other qualified applicants age 55 and older from the United States because of their age. Id.
The Consent Decree
On August 9, 2023, the parties filed a “Joint Notice Of Settlement Agreement And Requested Approval And Execution Of Consent Decree,” (the “Consent Decree.”). Id. The Consent Decree confirmed that the parties agreed to settle for $365,000, to be distributed to tutor applicants who were allegedly rejected by Defendants because of their age, during the time period of March 2020 through April 2020. Id. at 15. The settlement payments will be split evenly between compensatory damages and backpay. Id. at 16.
In terms of non-monetary relief, the Consent Decree also requires Defendants to provide anti-discrimination policies and complaint procedures applicable to screening, hiring, and supervision of tutors and tutor applicants. Id. at 9. Further, the Consent Decree requires Defendants to provide training programs on an annual basis for all supervisors and managers involved in the hiring process. Id. at 12-13. The Consent Decree, which will remain in effect for five years, also contains reporting requirements and record-keeping requirements. Most notably, the Consent Decree contains a monitoring requirement, which allows the EEOC to inspect the premises and records of the Defendants, and conduct interviews with the Defendant’s officers, agents, employees, and independent contractors to ensure compliance.
Implications For Employers
To best deter EEOC-initiated litigation involving AI in the hiring context, employers should review their AI software upon implementation to ensure applicants are not excluded based on any protected class. Employers should also regularly audit the use of these programs to make sure the AI software is not resulting in adverse impact on applicants in protected-category groups.
This significant settlement should serve as a cautionary tale for businesses who use AI in hiring and are not actively monitoring its impact. The EEOC’s commitment to its Artificial Intelligence and Algorithmic Fairness Initiative is in full force. If businesses have not been paying attention, now is the time to start.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and special counsel Rebecca Bjork with their discussion and analysis of key sanctions issued in class action litigation throughout 2022.
Jerry Maatman: Hello everyone and thank you for being here in our weekly installment each Friday of the Class Action Weekly Wire. Joining me today is Rebecca Bjork of our Washington D.C. office who is a special counsel in our Workplace Class Action Group.
Rebecca Bjork: Thanks – great to be here, Jerry.
Jerry: Today we have a little bit of a different topic – an important one and one that tends to rear itself from time to time in class action litigation, and that’s the topic of sanctions – either sanctions against the plaintiffs’ lawyer who brought the case or sanctions against defense counsel involved in the class action litigation. One of the chapters of our Duane Morris Class Action Review details the largest sanctions awards and rulings throughout the United States each year. Rebecca, what are some of the reasons that you’ve seen in the case law about why courts would ever enter sanctions in a class action?
Rebecca: Well, by way of background, sanctions really are simply thought of as penalties – in civil cases, they are typically in the form of a monetary fine, usually issued in response to violating some sort of court procedures or abusing the judicial process. And of course the most extreme sanction imposed in civil cases is dismissal with prejudice of the filing party’s claim – or on the other hand, dismissal of the answer of the responding party – so then the case would have no further movement going forward and it would be over with judgment against the party that was being sanctioned.
This actually happened in one case last year, Gui Zhen Zhu, et al. v. Matsu Corp., where the judge struck the defendants’ answer and entered a default judgment against them – and this was in a wage and hour collective action – and the reason for the sanction under Rule 37(b) was that their counsel disobeyed a court order to provide a class list for the provision of notice of the collective action under the Fair Labor Standards Act by the deadline that the court had set, and in addition the counsel had withdrawn his appearance without securing substitute counsel for the collective.
Jerry: It’s interesting – I’ve always thought that because sanctions are such an odious sort of end result of a lawsuit, that the losing party in the end of the sanctions are order often makes an appeal – and to me, one of the key decisions that I read in 2022 was the Tenth Circuit decision in the case of O’Rourke, et al. v. Dominion Voting Systems, Inc., which was a case where various citizens had sued saying that the presidential election was a fraud and that their votes weren’t counted. The defendants had to respond to the lawsuit, filed a motion to dismiss for lack of standing, judge granted it and found that in essence the lawsuit was frivolous, shouldn’t have been brought, that the arguments of the plaintiffs in terms of their standing were just entirely frivolous, and to the extent that even during oral argument they admitted as much and the district court judge entered sanctions of $187,000. The Tenth Circuit opinion affirming that decision in terms of the sanction order makes for very interesting reading – it’s almost a road map of what lawyers should not do, and a road map in terms of what lawsuits should not be brought because there’s no basis in law or fact for them to be brought – and you know kind of that notion of making a bad situation even worse where a district court sanction order is then broadcast nationwide in a court of appeals decision, which is exactly what happened, and it was picked up in the media and it’s become quite an important case. I think if you’re corporate counsel and you wanted to read one sanctions order – that Tenth Circuit decision would be kind of required reading in terms of the sanctions area.
Rebecca: That’s absolutely right, and if you’re a class action attorney you should probably be aware of the fact that sanctions can be awarded if settlement agreements are violated, and this happened last year in a case called Asset Acceptance, LLC, et al. v. Caszatt. The court granted a motion not only for sanctions but also for civil contempt and awarded the counterclaim defendant a payment of $387,314.04 in remedial damages to class members who were wrongly subject to collections. This was a debt collection class action, and the counterclaim plaintiffs’ counsel also had to pay the defendant’s attorneys’ fees, more than $1.1 million, and an additional monetary sanction of close to $1.2 million if they fail to pay within 30 days of the deadline set by the court.
Jerry: That’s a great point, Rebecca. In my experience another fertile ground where sanctions tend to be in the mix is with discovery and as we all know in class actions, discovery tends to be very laborious, very expensive – and if you’re a defendant it involves production of massive amounts of material, either written or electronically stored information. I read with interest the Hudgins, et al. v. Total Quality Logistics, LLC decision last year where there was a sanction order entered with respect to the manner and method by which the defendant had approached discovery, and the magistrate judge giving the defendant opportunity after opportunity and basically saying ‘I have no alternative but to sanction you and to impose monetary costs upon you because of the cavalier attitude and the positions you took in discovery.’ In my experience, magistrate judges lording over discovery – especially in federal court and especially in class actions – are getting very serious about that because of the potential costs and delays that are involved in games that are played with discovery.
Rebecca: That’s absolutely right, and not only monetary sanctions in the context of discovery are important to keep your eyes on, but also barring the use of evidence in the trial of the case. That happened in a case last year, L.D., et al. v. United Behavior Health, a class action alleging not paying sufficiently for out-of-network claims for substance use disorder and mental health treatments for people who were insured by the defendant. What happened in that case was that plaintiffs filed a motion for sanctions after the defendant submitted tens of thousands of documents in discovery after the discovery deadline had elapsed, and the court granted the plaintiffs’ motion and barred the defendant from using documents, audio records, an Excel spreadsheet – all of the information that they had failed to produce before the close of discovery.
Jerry: That’s a great example because sanctions or threats of sanctions are also used as a weapon, often by the plaintiffs’ bar against the defendants since discovery tends to be more focused on the defendants because they have the information, the data. In terms of the array of case law rulings in 2022, by your way of thinking, were there any notable rulings where judges backed up what defendants did and denied plaintiffs’ motions for sanctions in a class action?
Rebecca: Sure, absolutely there are instances where sanctions are denied even when a rule or proper procedure is violated if the defendant can show the court that there was no bad faith or willfulness on their part. This happened in a case in the state of Pennsylvania where it was involving people who were wards of the state who had profound intellectual disabilities, and they filed a class action alleging their civil rights were being violated. The name of the case is Jennings, et al. v. Wolf, and they failed to disclose an expert but released the expert’s report one day after the deadline. Plaintiffs still had four months left to rebut the testimony and they did, so the testimony didn’t come as a surprise to them, so the court found that there was no evidence of bad faith in order to apply any sanctions in that instance.
In a similar case, it wasn’t necessarily an issue of lack of bad faith that the defendant was able to convince the judge that they were not obligated under law to do what the plaintiffs’ side was asking them to do in a class action, and in this case it was producing the list of all putative class members’ names and addresses prior to certification. This was Holland-Hewitt, et al. v. Allstate Life Insurance Co., and again that court found that sanctions were not warranted in that situation.
Jerry: Well those are great insights and analysis Rebecca, I know you’re a subject matter expert in this area and I’m sure we’ll see more in 2023 since by their very nature, class actions involve very significant issues and lots of discoveries, so I’m sure corporate counsel will see other threats of sanctions and sanctions rulings down the line. Thank you loyal blog readers for joining us for our Friday weekly podcast – signing off, thanks so much.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Kathryn Brown
