Duane Morris Takeaway: Available now is the recent article in the American Bar Association’s magazine “The Brief” by Partner Alex Karasik entitled “An Examination of the EEOC’s Artificial Intelligence Evolution.”[1]The article is available here and is a must-read for all employers and corporate counsel!
In the aftermath of the global pandemic, employee hiring has become a major challenge for businesses across the country, regardless of industry or region. Businesses want to accomplish this goal in the most time- and cost-effective way possible. Employers remain in vigorous pursuit of anything that can give them an edge in recruiting, hiring, onboarding, and retaining the best talent. In 2023, artificial intelligence (AI) emerged as the focal point of that pursuit. The use of AI offers an unprecedented opportunity to facilitate employment decisions. Whether it is sifting through thousands of resumes in a matter of seconds, aggregating information about interviewees’ facial expressions, or generating data to guide compensation adjustments, AI has already had a profound impact on how businesses manage their human capital.
Title VII of the Civil Rights Act of 1964, which is the cornerstone federal employment discrimination law, does not contain statutory language specifically about the use of AI technologies, which did not emerge until several decades later. However, the U.S. Equal Employment Opportunity Commission (EEOC), the federal government agency responsible for enforcing Title VII, has made it a strategic priority to prevent and redress employment discrimination stemming from employers’ use of AI to make employment decisions regarding prospective and current employees.
Focusing on the EEOC’s pioneering efforts in this space, this article explores the risks of using AI in the employment context. First, the article examines the current litigation landscape with an in-depth case study analysis of the EEOC’s first AI discrimination lawsuit and settlement. Next, to figure out how we got here, the article travels back in time through the origins of the EEOC’s AI initiative to present-day outreach efforts. Finally, the article reads the EEOC’s tea leaves about the future of AI in the workplace, offering employers insight into how to best navigate the employment decision-making process when implementing this generation-changing technology.
Implications For Employers: Similar to the introduction of technologies such as the typewriter, computer, internet, and cell phone, there are, understandably, questions and resulting debates about the precise impact that AI will have on the business world, including the legal profession. To best adopt any new technology, one must first invest in understanding how it works. The EEOC has done exactly that over the last several years. The businesses that use AI software to make employment decisions must similarly make a commitment to fully understand its impact, particularly with regard to applicants and employees who are members of protected classes. The employment evolution is here, and those who are best equipped to understand the risks and rewards will thrive in this exciting new era.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and special counsels Eden Anderson and Rebecca Bjork with their discussion of significant arbitration rulings in the class action space.
Jerry Maatman: Thank you. Loyal blog readers and listeners for joining our weekly Podcast series. The Class Action Weekly Wire. My name is Jerry Maatman, and I’m a partner at Duane Morris and joining me today are my colleagues, Eden Anderson and Rebecca Bjork. Welcome.
Eden Anderson: Great to be here, Jerry.
Rebecca Bjork: Thanks, Jerry.
Jerry: Today, we wanted to discuss trends and important rulings in the area of arbitration, and specifically where named plaintiffs in class actions are signatories to arbitration agreements that contain class action waivers. What were some of the most significant developments in this space in calendar year 2023?
Eden: Well, while not a class action case, a big development in related PAGA litigation occurred out here in California in 2023. After the U.S. Supreme Court’s decision in Viking River Cruises, there was an open question in California as to whether a PAGA plaintiff whose individual claims are compelled to arbitration retain standing to still pursue their non-individual claims in court, and the California Supreme Court answered that question in the Adolph v. Uber Technologies case. And unfortunately, the answer was not a good outcome for employers.
The California Supreme Court held that PAGA plaintiffs do have standing to pursue non-individual claims in court, even if their individual claims are in arbitration. And as to logistics, the court clarified a few things. First, even though individual PAGA claims may be pending in arbitration and non-individual PAGA claims pending in court, the claims all remain one action, and the court action can be stayed pending the completion of arbitration. And as a practical matter, that’s what we’re seeing happen. And then, second, if the plaintiff loses an arbitration at that juncture, the plaintiff clearly no longer has standing to maintain non-individual PAGA claims. And third, if the plaintiff prevails in arbitration or settles their individual claims, they continue to possess standing to return to court, to pursue non-individual PAGA claims on behalf of others.
Jerry: Thanks, Eden. That sure underscores how vitally important it is for employers given the Adolph ruling to conduct an early assessment as to the value and viability of the named plaintiff’s claim as opposed to running the gauntlet, trying that individual arbitration, losing on at least one claim, and then having the plaintiffs’ lawyer resurrect a representative action and then corral and bring in all the other workers at issue in the case. What are some of the strategies to avoid that result in light of both Viking River and the Adolph decisions?
Eden: Well, but Jerry, as we thought might see happen, some plaintiffs have been alleging that they are aggrieved employees but then disclaiming individual relief trying to avoid arbitration through that pleading tactic. And there’s a recent decision from the California Court of Appeal, Balderas v. Fresh Start Harvesting, that plaintiffs are relying upon in support of that tactic the plaintiff there alleged that she was “not suing in an individual capacity” and, although the trial court felt the plaintiff lacked standing because she wasn’t seeking individual relief, the Court of Appeal disagreed and allowed the case to proceed in court. The Balderas decision was initially unpublished, non-citable, but the plaintiffs’ bar pushed for it to become a published, citable decision. Of course, from the defense perspective this pleading tactic raises some ethical concerns, because you have a plaintiff who is giving up any individual monetary recovery for themselves purely as a forum selection strategy that ends up only benefiting other people including their counsel.
Jerry: Rebecca, are there any other notable decisions in this array of cases from 2023?.
Rebecca: Oh, definitely. The Ninth Circuit also issued an important decision in Chamber Of Commerce Of The United States Of America v. Bonta, et al., which held that California Assembly Bill, also known as AB 51 – which is a statute that attempted to criminalize employers’ use of mandatory arbitration agreements – is preempted by the FAA. In that case, the Ninth Circuit affirmed a preliminary injunction prohibiting California from enforcing AB 51. On January 1, 2024, following a remand in the case, the district court entered a permanent injunction enjoining the State from enforcing the Labor and Government Code sections enacted as a part of AB 51, and the court also awarded the plaintiffs as prevailing parties $822,496. The district court’s order brings finality, judgment, and ultimate success to a strong coalition of employer interests that banded together to challenge the State’s attempt to criminalize the use of mandatory arbitration agreements.
Jerry: Well, that was a welcome ruling from the Ninth Circuit for employers, especially employers that utilize workplace arbitration agreements with class action waivers on a 50-state basis. Our Duane Morris Class Action Review kept track statistically in our database about all arbitration rulings last year, and it showed that 66% of the time, two-thirds of the time, employers were successful in winning motions to compel arbitration, and in the instances where they were not – about one third of the time – it wasn’t so much that there was something defective about the arbitration agreement, it’s that the employer couldn’t demonstrate that the employee had signed off on it, that the onboarding program was such that it couldn’t be proved, they couldn’t find the signature, couldn’t find the electronic trail, that would demonstrate that the employee actually signed off and agreed to the arbitration program. So it seems like the defense is very viable. The Ninth Circuit cleared one of the impediments to doing so. What do you see, as 2024 has now begun, some of the key arbitration decisions in this calendar year?
Eden: Yeah, Jerry, there have been, several significant rulings from the U.S. Supreme Court just in the last month. Last week the court issued its decision in Coinbase v. Suski, which held that where parties have agreed to two contracts – one sending arbitrability disputes to arbitration, and the other sending arbitrability disputes to the courts – that a judge (and not an arbitrator) must decide which of the two contracts governs. So, if a company rolls out successive contracts containing inconsistent terms regarding the forum for dispute resolution, a court will decide which of the two contracts applies. Companies with arbitration program should take heed of the Coinbase decision, and make sure that the wording of later issued contracts does not impair previously existing contractual rights to compel disputes to arbitration.
Rebecca: And the U.S. Supreme Court also issued a unanimous decision on May 16 of this year in Forrest v. Spizzirri, holding that when a district court determines that the claims in a lawsuit are arbitrable and a party has requested a stay of litigation, the district court does not have the discretion to dismiss the lawsuit instead. And this this decision resolved a split amongst the federal circuit courts over whether Section 3 of the FAA requires a stay in such circumstances by use of the word “shall” in that provision. The Supreme Court reasoned very clearly that established canons of statutory interpretation, as well as the structure and the purpose of the FAA, compelled the result in that case.
And, very importantly, on April 12, 2024, the U.S. Supreme Court issued a decision in Bissonnette v. LePage Bakeries Park St., LLC. In that case, they held that the application of the transportation worker exemption in the FAA turns upon the work performed by the plaintiff and not the employer’s industry. The Supreme Court made clear that this work-focused test should not bring within the exemption large swaths of workers who, you know, in some manner engage in products that happen to be within the flow of commerce. But instead, the Supreme Court clarified that the worker at issue must play a “direct” and a “necessary” role in the free flow of goods across state borders for the exemption to apply.
Jerry: Certainly seems that the U.S. Supreme Court is a big supporter of arbitration, especially in the class action space, and is trying to clarify things rather than to muddle them. What do you see coming down the track in 2024 in this space?
Eden: Yeah, Jerry, on the PAGA front we’ll likely continue to see plaintiffs disclaiming individual relief in an attempt to avoid arbitration. And in November, Californians will have the opportunity to vote on an initiative that aims to replace PAGA with the new law, the Fair Pay and Employer Accountability Act (“FPEAA”). And the new law, if passed, it will increase penalties for violations. But, on the other hand, it won’t provide for attorneys’ fees recovery, which, as you know, is a driving force behind the flood of PAGA cases that we see. And on the class action front, the future viability of the arbitration defense remains an open question as advocacy groups, government regulators, and political figures push for a ban on class action waivers in arbitration and to carve out categories of claims from arbitration altogether.
Jerry: Well, thank you both very much for this thought leadership and analysis of what we’re seeing. Harkens back to the presidential election from four years ago where actually the viability of workplace arbitration agreements surfaced in the presidential debates. So be interested to see if that occurs in this go around this particular summer. Well, thank you both, and thank you loyal blog readers and listeners for tuning into this week’s edition of the Class Action Weekly Wire.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Zachary J. McCormack
Duane Morris Takeaways: On May 23, 2024, in Braswell, et al. v. Bow Plumbing Group, Inc., No. 21-CV-00025, 2024 U.S. Dist. LEXIS 92478 (M.D. Ala. May 23, 2024), Judge Emily C. Marks of the U.S. District Court for the Middle District of Alabama granted Plaintiffs’ Emergency Motion for Curative Action to the extent that: (1) the Court struck 319 requests for exclusion (or “opt-outs”) submitted by individuals seeking to opt-out of a class-wide settlement; (2) the Court re-opened the opt-out and objection period for these 319 class members; and (3) the Court authorized issuance of a second curative notice and request for exclusion form to the 319 class members. Judge Marks tossed out the 319 “opt-outs” and partially reopened the objection period in an attempt to protect the due process rights of the affected class members. The Court took this action because it found that outside attorneys repeatedly misled the class members regarding the pending $8.025 million settlement, which lead to the numerous exclusion requests.
The Court found that two attorneys, who represent the same plaintiffs in separate but related class actions against the same defendant, Bow Plumbing Group, Inc., repeatedly contacted eligible class members to urge them to opt out of the settlement. The Court’s order not only provides guidance regarding the due process rights of class members, but also demonstrates the importance of effective and accurate attorney-client communications in the context of Rule 23.
Case Background
Bow Plumbing Group, Inc. produces drainage and pressure plumbing products in all the major plastic materials, including PEX tubing. On January 13, 2021, plaintiffs filed a class action alleging defects in Bow’s PEX tubing, which was installed in the homes of plaintiffs and the class members. Id. at *3. The parties eventually settled the case on a class-wide basis, and on February 28, 2024, the Court preliminarily approved the parties’ proposed $8.025 million settlement, provisionally certified the settlement class, and directed notice to the settlement class. Id. Shortly after, in March 2024, Attorneys Jay Aughtman and Kenneth Mendelsohn sent emails to a “blind-copied” list of their clients, which contained misleading or inaccurate statements regarding the proposed class action settlement and associated proceedings in this case. Id. Specifically, the emails contained misleading deadlines, misinformation regarding the terms of the settlement, an inaccurate statement that a California-based administrator, who was paid for from the settlement, would determine class members’ individual eligibility to receive any funds, and an incorrect suggestion that it could be unethical for plaintiffs’ counsel to communicate with presumptive class members. Id. at *4.
In response, on April 4, 2024, the Court determined that these emails “materially interfere[ed] with the Court’s order to effectuate a notice plan which fairly, accurately, and reasonably informs the settlement class members of the proposed settlement terms and associated procedures to resolve their claims.” Id. The Court further pointed out that this misinformation put final resolution of the case in jeopardy and risked class members to opt out without the benefit of accurate and complete information. Id.
On April 9, 2024 — within days of the Court’s order — the same attorneys sent another email to their clients stating: “Bow’s defense counsel and the class action attorneys are making rigorous efforts to delay your individual claims that we continue to pursue for you.” Id. The Court found the April 9, 2024 email falsely portrayed its efforts to rectify Attorneys Aughtman and Mendelsohn’s misleading communications as unnecessarily delaying their clients’ individual claims. Id. Finally, on May 7, 2024, the attorneys sent another email suggesting that class members should not speak with class counsel, despite the Court’s April 4 O\order expressly observing that such communications are permissible. Id. at *5. Presumably as a result of the attorneys’ misleading communication, the parties received, through the Court-appointed settlement administrator, a total of 319 requests for exclusion. Id.
The Court’s Decision
The Court held that the attorneys undermined the integrity of the class settlement process by providing incomplete, misleading, and coercive information to potential class members. Id. at *7. Based on these communications, as well as the fact that many of the requests for exclusion were signed before the Court’s curative notice or before the Court-approved notice of the settlement was even issued, the Court was concerned that a significant percentage of these requests for exclusion were caused, in whole or in part, by the inaccurate or incomplete information disseminated by the attorneys. Id. Therefore, to safeguard the integrity of Rule 23, the class members’ due process rights, and the administration of justice, the Court ordered corrective measures to ascertain whether the 319 “opt-outs” are aware of the terms of the settlement, have been adequately informed, and have been provided a sufficient, uncoerced opportunity to decide whether they wish to remain in the class. Id. at *8.
Rule 23 “requires that class members be given information reasonably necessary for them to make a decision.” Id. at *9. The Court reasoned that, under Rule 23(c)(2)(B) it has a responsibility to give class members “the best notice that is practicable under the circumstances.” Id. The Court reasoned that, since it was over two months since the affected class members first learned about the settlement, a shortened opt-out period is both practical and reasonable. Id. Accordingly, the settlement administrator was given seven days to send out the curative letter and renewed request for exclusion forms to the 319 presumptive class members, and they were given 29 days to respond, with a new deadline of June 21. Id. at *10.
Implications Of The Decision
This order serves as a cautionary reminder of the potential repercussions for providing incomplete or inaccurate information to clients. Further, it depicts the consequences of subverting a class action settlement deal.
Rule 23 provides courts with a responsibility to ensure class members have information necessary to decide whether to opt-out of litigation. Corporate counsel should take note of the Court’s interpretation of Rule 23 to be more equipped to effectively handle class action litigation, and continue to monitor this space for future developments.
By Eden E. Anderson, Rebecca S. Bjork, and Gerald L. Maatman, Jr.,
Duane Morris Takeaways: On May 22, 2024, the California Court of Appeal held in Hernandez v. Sohnen Enterprises, Inc., 2024 WL 2313710 (Cal. App. May 22, 2024), that the Federal Arbitration Act (“FAA”) preempts the California Arbitration Act’s provisions that impose forfeiture of the right to arbitration for late payment of arbitration fees. Although employers should continue to closely monitor and fully adhere to arbitration fee payment deadlines, the Hernandez decision recognizes that mistakes can occur and should not result in the overly harsh penalty of forfeiture of the arbitral forum. The decision creates a split of authority within the California Courts of Appeal that may ultimately need to be resolved by the California Supreme Court.
Case Background
After Hernandez initially filed various claims against her employer in court, the parties stipulated to move the claims into arbitration and to stay the court case. The applicable arbitration agreement provided that it was governed by the FAA and that the Federal Rules of Civil Procedure (“FRCP”) would apply in arbitration. After Hernandez’s demand was filed in arbitration, JAMS requested payment from the employer of its share of the filing fees. The employer paid those fees one week past the 30-day statutory deadline of Section 1281.97 of the California Code of Civil Procedure (“Section 1281.97”).Hernandez then filed a motion to withdraw from arbitration and to lift the stay of the court case.
The trial court granted the motion. It concluded that the employer’s late payment of arbitration fees was a material breach of the arbitration agreement. The court also imposed monetary sanctions against the employer. The employer appealed on the basis that the arbitration agreement was governed by the FAA and that the FAA preempted Section 1281.97.
The Court Of Appeal’s Decision
The Court of Appeal reversed. It held that, because the parties agreed that the FAA and FRCP would apply to the arbitration agreement and in arbitration, the procedures of the California Arbitration Act, including Section 1281.97’s 30-day arbitration fee payment deadline, did not apply. Additionally, the Court of Appeal held that, even if Section 1281.97 applied, it was preempted by the FAA.
Under the FAA and its “equal treatment” principle, arbitration agreements must be treated the same as any other contract and can only be invalidated based on generally applicable contract defenses. The Court of Appeal held that Section 1281.97 violated this equal treatment principle because it mandates a finding of material breach (and resulting waiver of the right to arbitration for late payment of arbitration fees) that would not apply generally to all contracts. The Court of Appeal noted that, ordinarily, a party to a contract can argue substantial compliance, but Section 1281.97 precludes such an argument because it mandates strict adherence to fee payment deadlines. Additionally, the Court of Appeal found that Section 1281.97 frustrates the FAA’s objective of cheaper, more efficient resolution of disputes by increasing the overall cost of litigation and wasting resources already invested in arbitration.
Implications Of The Decision
The Hernandez decision marks the first time the California Court of Appeal has held that Section 1281.97 is preempted by the FAA. The decision creates a split in authority amongst the California Courts of Appeal. Other appellate courts in California have concluded that Section 1281.97 promotes the goals of the FAA because, in requiring prompt payment of arbitration fees, arbitrations can proceed without delay. Employers must continue to closely monitor arbitration fee payment deadlines to ensure timely payment. However, if a mistake happens, the Hernandez case may, if followed by trial courts, provide relief so long as the applicable arbitration agreement makes clear that the FAA and federal law, and not the California Arbitration Act or California law, govern.
Duane Morris Takeaway: In its review of the Duane Morris Class Action Review – 2024, EPLiC Magazine called it the “the Bible” on class action litigation and an essential desk reference for business executives, corporate counsel, and human resources professionals.
We are humbled and honored by the recent review of the Duane Morris Class Action Review – 2024 by Employment Practices Liability Consultant Magazine (“EPLiC”) – the review is here.
EPLiC said that “The Review must-have resource for in-depth analysis of class actions in general and workplace litigation in particular.”
EPLiC continued that “The Duane Morris Class Action Review analyzes class action trends, decisions, and settlements in all areas impacting corporate America and provides insight as to what companies and corporate counsel can expect to see in 2023 in terms of filings by the plaintiffs’ class action bar and governmental enforcement agencies likes the Equal Employment Opportunity Commission (EEOC) and the Department of Labor (DOL).”
So how do we do it?
The answer is pretty simple – we live, eat, and breathe class action law 24/7/365.
Every day, morning, and evening, we check the previous day’s filings of class action rulings relative to antitrust class actions, appeals in class actions, arbitration issues in class actions, Class Action Fairness Act issues in class actions, civil rights class actions, consumer fraud class actions, data breach class actions, EEOC-initiated litigation, employment discrimination class actions, Employee Retirement Income Security Act class actions, Fair Credit Reporting Act class actions, wage & hour class actions, labor class actions, privacy class actions, procedural issues in class actions, product liability & mass tort class actions, Racketeer Influenced and Corrupt Organization Act class actions, securities fraud class actions, settlement issues in class actions, state court class actions, Telephone Consumer Protection Act class actions, and Worker Adjustment and Retraining Act class actions. The Review also has focused appendices on significant sanctions in class actions, the largest attorneys’ fee awards, major settlements across all areas of litigation, the Illinois Biometric Information Privacy Act and the California Private Attorneys General Act.
We conduct due diligence reviews on a national basis for all of these areas, in both federal courts and in the courts of all 50 states. Then we read and analyze every ruling on Rule 23 certification motions and subsidiary issues throughout federal and state trial and appellate courts. The information is organized in our customized database, which is used to provide the Review’s one-of-a-kind analysis and commentary.
The result is a compendium of class action law unlike any other. Thanks for the kudos EPLiC – we sincerely appreciate it!
We look forward to providing the 2025 Review to all of our loyal readers in early January. In the meantime, check out our first-ever 2024 1st Quarter Class Action Settlement Review blog post here!
By Eden E. Anderson, Rebecca S. Bjork, and Gerald L. Maatman, Jr.
Duane Morris Takeaways: On May 23, 2024, the U.S. Supreme Court issued its decision in Coinbase, Inc. v. Suski, Case No. 23-3 (2024). The Supreme Court held that, where parties have agreed to two contracts — one sending arbitrability disputes to arbitration, and the other sending arbitrability disputes to the courts — a judge (and not an arbitrator) must decide which contract governs. Thus, if a company rolls out successive contracts containing inconsistent terms regarding the forum for dispute resolution, a court will decide which of the two contracts applies. Companies with arbitration programs should take heed of the decision, and make sure that the wording of later issued contracts do not impair previously existing contractual rights to compel disputes to arbitration.
Case Background
Coinbase operates a cryptocurrency exchange platform where users can buy and sell cryptocurrency. Coinbase offered a sweepstakes that users could enter for a chance to win cryptocurrency. In connection with the sweepstakes, users filed a class action complaint alleging that the sweepstakes violated various California consumer protection statues.
Citing an arbitration clause in the User Agreement, Coinbase moved to compel arbitration and to dismiss the class claims based on a class action waiver contained therein. The arbitration clause in the User Agreement included a delegation clause and, per that provision, an arbitrator was to decide whether a given dispute was arbitrable. The users argued that the court, and not an arbitrator, should decide the arbitrability issue.
In support, the users cited a second contract — the Official Rules — they had agreed to in connection with the sweepstakes. In contrast to the earlier executed User Agreement, the Official Rules contained a forum selection clause providing that all disputes related to the sweepstakes had to be decided in California courts. The users also argued that the Official Rules superseded the User Agreement and its arbitration and class action waiver provision. Coinbase responded that the delegation clause in the User Agreement was meant to govern all agreements moving forward and that the issue of arbitrability should be left in the hands of an arbitrator, and not the court.
The district court denied Coinbase’s motion to compel arbitration and the Ninth Circuit affirmed. Both reasoned that deciding which contract governed was a question for the court, and not an arbitrator, to answer; that the User Agreement’s arbitration provision conflicted with the forum selection clause in the Official Rules; and that the Official Rules superseded the User Agreement.
The U.S. Supreme Court then granted review to answer the question of who — a judge or an arbitrator — should decide whether a subsequent contract supersedes an earlier arbitration agreement that contains a delegation clause.
The Supreme Court’s Decision
The Supreme Court held that, where parties have agreed to two contracts — one sending arbitrability disputes to arbitration, and the other sending arbitrability disputes to the courts — a court must decide which contract governs. By contrast, in cases where only one contract is at issue, and that contract contains an arbitration clause with a delegation provision, courts must send all arbitrability disputes to arbitration, absent a successful challenge to the delegation clause.
Thus, the Supreme Court determined that it was correct for the district court (and the Ninth Circuit) to have determined which contract governed the claims concerning the sweepstakes. Although Coinbase sought to challenge the Ninth Circuit’s ruling that the Official Rules superseded the User Agreement, the Supreme Court declined to consider that issue.
Implications Of The Decision
The Suski decision serves as a cautionary reminder to companies that roll-out successive contracts that bear on the forum for dispute resolution. A court’s task is to determine what the parties’ agreement was or if a contract was not formed. If an earlier contract contains an arbitration clause with a delegation provision, but a later contract does not and refers disputes to the courts, it will be up to a judge to decide which contract governs.
Anytime a company issues successive contracts addressing topics such as the forum for disputes, it is important to ensure there is consistency in the forum selected or else the right to arbitration and dismissal of class claims (based on a class action waiver) may be lost.
Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associate Tyler Zmick with their discussion of significant appellate decisions issued by courts throughout 2023 and 2024.
Jerry Maatman: Loyal blog readers, thank you for being here again for our next episode of the Class Action Weekly Wire. I’m Jerry Maatman, a partner at Duane Morris, and joining me today is my colleague Tyler Zmick. And we’re here to talk about appeals. Thanks so much, Tyler, for being on the podcast.
Tyler Zmick: Thanks very much for having me, Jerry.
Jerry: Today we wanted to discuss trends and important rulings in the area of appeals in class action litigation in general, and class certification orders in particular. Parties obviously have very limited options to seek interlocutory appeal in litigation. But class action litigation is a little different. Tyler, could you share with us some of the ways in which parties can move for interlocutory appeal on class action related issues?
Tyler: Sure. So there are basically two potential avenues that a party has for seeking interlocutory appeal of a class certification ruling. The primary mechanism is Rule 23(f) of the Federal Rules, and that rule states that a party must ask for permission to appeal with the clerk of the appellate court within 14 days of the district court order being entered. And as the backup option, the second one parties can also seek interlocutory appellate review under Federal Statute 28 U.S.C. § 1292(b). And both of these avenues together, Rule 23(f) and Section 1292(b), they’re important in that early appeals help correct early errors on questions of law that, if left until final judgment, could potentially require parties to spend years engaging in needless and expensive litigation.
Jerry: I’ve always thought that the stakes are high in class action litigation, especially if there’s a certification order and the discovery that file follows it, it can be a million dollar kind of issue. When you’re advising your clients, what are the kind of the primary options or differences between those two methods for appeal?
Tyler: Sure that’s a great question. There’s multiple different standards applied by the courts, but I think one of the primary differences is that, unlike an interlocutory appeal under section 1292(b), Rule 23(f) does not require that the district court certify an issue for appeal. So Rule 23(f) is a one step process where only the appellate court needs to allow the appeal to go forward. Under Section 1292(b), on the other hand, a party needs permission from both the district court and the appellate court to move forward with the appeal. So you have basically two gatekeepers instead of one, and hence it’s higher burden that you face if you want to seek an appeal through that route.
Jerry: Since they’re discretionary, what kind of success factors do you see from year to year in the appellate courts?
Tyler: Success rates are generally not great. The data shows that appellate courts deny roughly 75% of Rule 23(f) petitions, and most of those denials are accomplished via summary orders, meaning the order just says the petition for permission to appeal is denied without any explanation or reasoning on part of the court.
Jerry: I know you’ve been involved in many appeals in class action situations and co-authored the chapter in the Duane Morris Class Action Review on appeals. Were there any particular decisions that you think are important to share with our listeners in terms of what occurred in the appellate courts in 2023?
Tyler: Sure, absolutely, I think one notable case was issued in July of 2023. The case was In National ATM Council, Inc., et al. v. Visa Inc., and in that case the D.C. Circuit actually offered a rare explanation of its decision. And the decision was to grant a petition to appeal a class certification order under Rule 23(f). And so by way of background, in that case the district court certified a class of ATM operators and ATM customers who alleged that defendants Visa and Mastercard’s rules regarding ATM fees violated federal antitrust laws. And the D.C. Circuit granted Visa and Mastercard’s Rule 23(f) petition to appeal. In doing so, the D.C. Circuit noted sort of strangely that the trial court’s class certification order did not pose an important legal question that needed to be resolved, which is unusual because usually that is the case when an appellate court will accept a Rule 23(f) petition to appeal. Instead, the D.C. Circuit noted that the trial courts order contained statements of law that were unclear, the court citations were not current, and it’s “record analysis” was notably terse. So, in other words, the district court’s explanation was inadequate. If you’re a trial court judge, this is not the kind of order you want to see from the appellate court that is directly above you, and the D.C. Circuit also commented that the district court’s order failed to cite the Supreme Court’s most recent case law analyzing whether common issues predominate over individualized ones in the class action context. So taken together, the appellate court concluded that questionable accuracy of the district court’s unclear language, combined with the settlement pressure that would result from a class certification ruling in favor of plaintiffs, warranted a Rule 23(f) appeal.
Jerry: That seems to be a really interesting decision, and one that practitioners can learn from. Now that we’re almost midway through 2024, have there been any similar rulings or interesting appellate decisions on these sorts of petitions so far this year?
Tyler: Yes, absolutely. I think there’s been at least one notable ruling in 2024 thus far, and the case is Dale, et al. v. Deutsche Telekom AG, where the plaintiffs filed a class action on behalf of AT&T and Verizon customers, and the plaintiffs alleged that a merger between T-Mobile and Sprint resulted in the reduction of competition, causing these customers to have to pay billions of dollars more for their wireless services than they would have otherwise had to pay. And so, in response to the complaint, T-Mobile filed a motion to dismiss, arguing that antitrust standing was lacking, and the district court denied that motion, after which T-Mobile moved to certify the issue for appeal under Section 1292(b). And specifically T-Mobile sought to certify the question whether the plaintiffs, who were customers of AT&T and Verizon, plausibly alleged antitrust standing to challenge the merger of T-Mobile and Sprint. And so the issue is, do these plaintiffs have standing given that they are not customers of either of the parties to the merger, but rather non-parties AT&T and Verizon, who whose cell phone rates basically are going to be impacted by this merger. In deciding to certify the question for appeal, the district court held that this standing question is a contestable question of pure law, not a mixed question of fact and law. And so when it’s a pure legal issue, it’s more likely to meet the interlocutory appeal test. And specifically the court reasoned that there were substantial grounds for a difference of opinion on whether the plaintiffs plausibly alleged antitrust standing. And the court stated that the complaint set forth a plausible theory that AT&T and Verizon customers were injured at the first step as direct consumers in the market, where the merger allegedly restrained competition and raised prices. And so, as a result, the court certified the question for interlocutory appeal to the Seventh Circuit, and it remains to be seen if the Seventh Circuit will also let the appeal go forward.
Jerry: That’ll be a good one to mark to see when the future ruling comes out. I’ve always thought Rule 23, in terms of allowing that appeal was kind of an exception to the general rule, that interlocutory appeals are just so difficult – a big uphill climb. Conversely, in terms of your study in this area and your practice, have there been any relevant court rulings involving appeals under the interlocutory appeal route, which is 28 U.S.C. § 1292(b), in 2023 or in 2024?
Tyler: Yup. So defendants succeeded in obtaining interlocutory appellate review under Section 1292(b) in multiple decisions in 2023, including on one critical issue relative to the class and collective action context. And that issue is how to apply the U.S. Supreme Court’s decision in Bristol-Myers Squibb regarding personal jurisdiction and how that sort of intersects with the claims of potential out-of-state opt-ins in FLSA collective actions as opposed to Rule 23 class actions. So in the case at issue, Vanegas, et al. v. Signet Builders, Inc., it was filed in federal court in Wisconsin, and the plaintiff filed an FLSA collective action, claiming that the defendant failed to pay him, owed overtime, and the plaintiff sought to represent a collective action of mostly non-U.S. citizens, including only 30 who worked in Wisconsin, which is where the case was pending, and almost 600 who performed work in other states. The defendant argued that personal jurisdiction was lacking with respect to those out-of-state potential opt-ins. But the court rejected that argument and proceeded to conditionally certify the proposed collective action and basically pushed to the future the issue of whether the court could exercise personal jurisdiction over those out-of-state potential opt-ins. And so, as a result of that order, defendant sought to certify an appeal under Section 1292(b), and specifically defendant sought to certify this question – whether in an FLSA collective action, if it is proper to defer the personal jurisdiction inquiry until after notice has been sent to potential opt-ins. The court granted defendant’s petition, basically because that question is important enough to warrant interlocutory review. While the court concluded that the jurisdictional principles in Bristol-Myers Squibb did not apply in the FLSA collective action context, the court ruled that the decision was still certifiable for review, because other courts have held that Bristol-Myers Squibb does apply to FLSA collective actions. In addition, it’s a pure question of law that would not require the appellate court to sift through the factual record and obviously the decision here would have a dramatic impact on the future scope of the litigation.
Jerry: Well, that’s a great result for the defendant in that case, somewhat of a unicorn to get an appeal like that up there. So two big appellate rulings to watch for then in the next quarter to several months away in the Seventh Circuit. Well, it seems like novel approaches are the ones that seem to get the courts’ attention as appellate issues begin to percolate through the court.
Well, thanks so much for this great analysis of a very complex area, Tyler, and thank you for being with us today. Listeners, thank you for tuning in.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Ryan T. Garippo
Duane Morris Takeaways: On May 15, 2024, in McDaniel, et al. v. Wisconsin Department of Corrections, No. 22-AP-1759, 2024 WL 2168148 (Wis. App. May 15, 2024), the Wisconsin Court of Appeals of held that the Wisconsin Department of Corrections (“WDOC”) employees were not entitled to compensation for time spent waiting in line to get to security checkpoints; passing those security checkpoints; getting their daily assignments and equipment; and walking to their job stations. This decision further illuminates the scope of compensable time under the Fair Labor Standards Act (“FLSA”) and its state law analogs.
Case Background
Plaintiffs Nicole McDaniel and David Smith (“Plaintiffs”), both hourly employees, sued the WDOC for an alleged failure to provide them with compensation for their pre-shift and post-shift activities. These activities included waiting in line for and passing through security checkpoints; getting their daily assignments and equipment; and walking to their job stations. These activities took the employees anywhere between three and 30 minutes per day. Plaintiffs, believing they were entitled to additional paid time as a result of these activities, sued under the Wisconsin state wage and hour laws and the FLSA. After discovery, they moved to certify their purported class.
In response, the WDOC argued that each of these pre-shift and post-shift activities were non-compensable under the Portal-to-Portal Act and its state law equivalents. Their rationale was that “the principal activities for which an employee was hired, such as time spent commuting, time spent walking from the entrance of a workplace to one’s assigned post, and other similar activities” are excluded from the scope of compensable work activities. Id. at *3. The WDOC, therefore, argued that the class should not be certified because the purported class members could not recover as a matter of law.
The trial court disagreed with the WDOC. It held that it was “sufficiently plausible” that the employees time was compensable and it certified a class comprised of “[a]ll current and former non-exempt, hourly-paid [WDOC] employees who worked as security personnel in a correctional institution . . . in the State of Wisconsin.” Id. at *2. The WDOC appealed that ruling.
Court of Appeals Opinion
The Wisconsin Court of Appeals reversed the trial court’s decision. It held that the trial court abused its discretion to certify the class. In so doing, the Court of Appeals relied heavily on the U.S. Supreme Court decision in Integrity Staffing Solutions, Inc. v. Busk, 574 U.S. 27 (2014), which sets forth the legislative intent for the Portal-to-Portal Act and its case law progeny. The Court of Appeals explained that “the Portal-to-Portal Act was created by Congress in direct response to a series of ‘expansive definitions’ of a ‘workweek’ under the FLSA.” Id. at *3. There, the Supreme Court in Busk unanimously concluded that participation in security screenings were not compensable activities that the employer hired their employees to perform.
The Wisconsin Court of Appeals adopted the U.S. Supreme Court’s reasoning and reached the same conclusion. Indeed, none of the activities for which Plaintiffs sued were “integral and indispensable” activities that the employees were hired to perform for the WDOC. Id. Instead, the Court of Appeals reasoned that these activities were merely ancillary to Plaintiffs’ job functions.
In short, the Court of Appeals concluded that Plaintiffs could “point to no questions of law or fact common to the class regarding activities at the start and end of the compensable work day” and the trial court erred by certifying the class because the class could not recover as a matter of law. Id. at *4 (internal citations omitted).
Implications For Employers
The holding in McDaniel, et al. v. Wisconsin Department of Corrections has far broader implications than just the practices within the Wisconsin state correctional system. Employers, particularly those in Wisconsin, will often not be required to compensate employees for similar activities on the basis that those pre-shift and post-shift activities are exempt from the FLSA’s reach.
It is worthy of note, however, that corporate counsel must be confident in its determinations with respect to the FLSA, because a willful violation of the statute may result in increased liability for employers.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Derek S. Franklin
Duane Morris Takeaways: On May 10, 2024, in Richards v. Eli Lilly & Co., et al., No. 1:23-CV-00242 (S.D. Ind. May 10, 2024), Chief Judge Tanya Walton Pratt of the U.S. District Court For The Southern District Of Indiana grantedEli Lilly’s motion asking the Court to certify for interlocutory appeal the question of whether a plaintiff must show more than a “modest factual showing of similarity” in order to issue notice in a collective action. The Court certified for review by the Seventh Circuit the specific question of “[w]hether notice in a collective action can issue based on a modest factual showing of similarity, rather than upon a showing by a preponderance of the evidence that requires the Court to find that commonality across the collective [action] is more likely than not.”The ruling and the future appellate decision should be required reading for companies involved in wage & hour litigation.
Case Background
Named Plaintiff Monica Richards brought a proposed collective action against Defendants Eli Lilly & Company and Lilly USA, LLC’s (collectively, “Eli Lilly”) under the Age Discrimination in Employment Act (ADEA) alleging that Eli Lilly knowingly and willfully denied promotions to qualified employees who were older than 40, including herself and all other similarly situated employees. Id. at 1.
Plaintiff moved for conditional certification of a proposed ADEA collective action of “[a]ll Eli Lilly employees who were 40 or older when they were denied promotions for which they were qualified, since February 12, 2022.” Id. at 2. Plaintiff’s motion urged the Court to utilize a “two-step” legal standard to evaluate collective action certification established in 1987 by Lusardi v. Xerox Corp., 118 F.R.D. 351 (D.N.J. 1987). Id. at 2. Under the Lusardi framework, plaintiffs need only present what some judges have described as a “modest factual showing” that similar potential plaintiffs exist to satisfy the first step, i.e., certification of a collective action on a conditional basis. Id. In the second step, assuming others have joined the lawsuit as opt-in plaintiffs and the parties have completed discovery on the merits, the court makes a final determination whether the opt-in plaintiffs actually qualify as parties to the litigation on the basis of substantial similarity to the named plaintiffs in what is known as a second-stage final certification order. Id. at 3.
Eli Lilly responded that the Court should follow the recent Fifth Circuit decision in Swales v. KLLM Transp. Servs., LLC, 985 F.4th 430 (5th Cir. 2021), and/or Sixth Circuit decision in Clark v. A&L Homecare & Training Ctr., LLC, 68 F.4th 1003 (6th Cir. 2023), which both rejected the longstanding two-step approach developed in Lusardi in favor of more rigorous one-step processes. Id.
On March 25, 2024, the Court granted Plaintiff’s motion for conditional certification of the ADEA collective action using the two-step Lusardi framework that Plaintiff urged the Court to adopt. Thereafter, Eli Lilly filed a motion asking the Court to certify an immediate appeal on the question of which legal standard courts in the Seventh Circuit should use to evaluate conditional certification of a collective action. Plaintiffs sought review pursuant to 28 U.S.C. § 1292(b). Id. at 2.
Certification Of Interlocutory Appeal
On May 10, 2024, the Court granted Eli Lilly’s motion and certified for interlocutory appeal the specific question of: “Whether notice in a collective action can issue based on a modest factual showing of similarity, rather than upon a showing by a preponderance of the evidence that requires the Court to find that commonality across the collective [action] is more likely than not.” Id. at 12.
In doing so, the Court explained that the certified question met the criteria for an interlocutory appeal under 28 U.S.C. § 1292(b) because it “involves a controlling question of law to which there is substantial ground for difference of opinion and an immediate appeal from the order may materially advance the ultimate termination of litigation.” Id. at 12. The Court further reasoned that “Eli Lilly simply seeks clarity on the proper legal standard for collective certification, not whether the Court appropriately applied the facts to a particular standard,” and that “[t]he Seventh Circuit should be given the opportunity to clarify the standard, should it so choose.” Id. at 6.
Along with certifying the this legal question for appellate review, the Court stayed the issuance of notice to members of the proposed collective action pending the outcome of the Seventh Circuit’s ruling. Id. at 12.
Implications For Employers
The Richards decision is consequential because it will prompt the Seventh Circuit to weigh in for the first time on the applicable legal standard governing what a plaintiff must establish for a court to grant conditional certification of a collective action. While the proposed collective action in Richards concerns claims under the ADEA, the ADEA incorporates the FLSA’s collective action procedures, meaning that the certified question will also impact collective action lawsuits under the FLSA.
As any employer who has been sued by a named plaintiff seeking to represent an FLSA collective action knows, the discovery burden imposed by application of the two-step Lusardi decision is far more onerous than what the Fifth Circuit established in Swales or the Sixth Circuit established in Clark.
On top of the discovery implications, employers litigating FLSA cases in the Seventh Circuit will want to keep a close eye on how it rules in Richards, since it will significantly impact how heavy of a burden plaintiffs will face in order to show they are similarly situated to the individuals they seek to notify of a collective action.
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Christian J. Palacios
Duane Morris Takeaways: On May 15, 2024, U.S. District Judge Sara Ellis of the U.S. District Court for the Northern District of Illinois conditionally certified a collective action of female workers employed by AstraZeneca, and approved notice to be sent to female sales representatives who have worked at the pharmaceutical company since December 30, 2018. The case, captioned Jirek, et al., v. AstraZeneca Pharmaceuticals LP, Case No. 1:21-CV-6929 (N.D. Ill., May 14, 2024), represents another significant win for the plaintiffs’ bar, and serves as a reminder of the low legal threshold that plaintiffs have to satisfy in order to conditionally certify a collective action at the initial stage of a lawsuit. This ruling is particularly noteworthy given the fact that collective action definition that has been approved by the Court will include notice to likely thousands of AstraZeneca’s female sales representatives on a nationwide basis (as AstraZeneca employs over 3,500 sales representatives to market its pharmaceutical products, as noted in the beginning of the Court’s order).
Background
The Named Plaintiffs Natalie Jirek, Judy Teske, and Natalie Ledinsky brought suit against their former employer, global biopharmaceutical company, AstraZeneca, alleging violations of the Equal Pay Act of 1963 (the “EPA”) for failure to pay a purported collective action of female employees less than their male counterparts for the same or substantially similar work in sales positions within the same pay scale levels. Jirek et al., v. AstraZeneca Pharmaceuticals LP, Case No. 1:21-CV-06929, ECF No. 88 at p. 2 (N.D. Ill. Jan. 26, 2024) (the “Conditional Certification Motion”).
Plaintiffs’ evidence in support of this sex-based wage discrimination claim included 10 online job postings from different locations, a declaration from each of the named-plaintiffs, AstraZeneca’s “Career Ladder Program Guide” (an internal evaluation guide from July 2010, which, according the AstraZeneca’s declarant, hadn’t been used since 2015), and two unequal pay violations issued by the U.S. Department of Labor’s Office of Federal Contract Compliance Program’s (“OFCCP”) following the OFCCP’s evaluation and analysis of AstraZeneca’s payment structure. According to the conditional certification motion, the OFCCP found that, beginning in September 2016, AstraZeneca failed to comply with Executive Order 11246, which prohibits companies that do over $10,000 in U.S. government business from discriminating against employees on the basis of gender. Id. Specifically, the OFCCP found that AstraZeneca discriminated against female employees in “Specialty Care Sales Representative Level 4 positions” in violation of the Executive Order, after comparing random samplings of men and women and finding that there was a difference in $2,182.07 between the sexes in sales representative positions. As a result of the OFCCP Conciliation Agreement, all the women in the OFCCP’s sampling were entitled to back pay plus interest. The Complaint alleges that despite this, Defendant did not change its discriminatory pay practices until at least 2021.
The Court’s Decision
On May 14, 2024, Judge Ellis entered an order conditionally certifying the collective action and allowing Plaintiffs to send notice to “females employed by AstraZeneca in sales positions as of December 30, 2018.”
By all accounts, this is a sweeping collective action definition that likely will result in notice to thousands of current and former AstraZeneca female employees within the collective action period. Of the evidence submitted by Plaintiffs’ counsel, the Court noted that it found the similarity in language amongst job postings to be a compelling reason to support Plaintiffs’ assertion that the sales representatives were similarly situated, regardless of location. See ECF No. 114, at 12. Although the Court noted that Defendant’s proffered declaration from AstraZeneca’s Vice President of Human Resources attempted to “diffuse” some of the similarities, the Court reasoned that these factual questions were inappropriate for resolution at the conditional certification stage. Id. The Court declined to engage in other “credibility determinations” that AstraZeneca presented to respond to the evidence Plaintiffs submitted. The Court also observed that the “OFCCP Agreement [gave] Plaintiffs the hook they need[ed] to tie the nationwide body of sales representatives to alleged widespread gender-based pay discrimination.” Id. at 14.
The Court concluded its analysis of Plaintiffs’ conditional certification motion by noting the weakness of Plaintiffs’ declarations, stating, “Frankly, Plaintiffs’ declarations do not say much, primarily regurgitating allegations contained in their already thin amended complaint. But another word for ‘allegations lifted from a complaint and a repeated verbatim in a declaration’ is ‘evidence’ and arguably weak evidence is still evidence that the Court – again – may not weigh at this stage.” Id. at 16. In the same order, the Court asked the parties to continue engaging in negotiations regarding the proposed form of notice, and tolled the statute of limitations for the time period that elapsed between the Court’s decision and the Court’s approval of the notice form.
Implications
The conditional certification stage of a collective action is a universally recognized lenient standard for plaintiffs to meet. Nevertheless, Judge Ellis’s approval of such a massive collective action at the conditional certification stage is a blow to the defense, and is a reminder of how lenient the evidentiary standard is for the first stage of collective actions. Although it remains to be seen if Plaintiffs will be able to prevail at stage two of the Court’s analysis (after notice has been sent to collective members and discovery has been conducted), for now, Plaintiffs will be able to proceed with their collective action in a significant Equal Pay Act lawsuit.
By Alex W. Karasik 
