Just In Time For The Holidays: New York Federal Court Gifts The Denial Of Plaintiffs’ Rule 23 Class Certification Motion In FDNY Bias Lawsuit

By Gerald L. Maatman, Jr., Katelynn Gray and Elizabeth M. Lacombe

Duane Morris Takeaways – In Local 3621 Of The EMS Officers Union, et al. v. City Of New York, Case No. 18 Civ. 4476, 2022 U.S. Dist. LEXIS 212218 (S.D.N.Y. Nov. 22, 2022), the City successfully defeated a Rule 23 motion for class certification brought by a group of EMS officers and Unions who alleged that the promotional process to leadership positions resulted in disparate and discriminatory promotional practices in violation of federal, state, and local law. The ruling is a primer for employers on how to dismantle employment discrimination class claims.

Background Of The Case

Plaintiffs Renae Mascol, Luis Rodriguez, Local 3621, EMS Officers Union, DC-37, AFSCME and AFL-CIO (collectively, “Plaintiffs”) brought a class action on behalf of its members and all other similarly-situated individuals against Defendants, the City of New York, the New York City Fire Department, and the Department of Citywide Administrative Services (collectively, the “City”), alleging Defendants’ subjective promotional policies and practices led to the denial of promotions to qualified applicants based on their race, sex, gender and/or disability and/or circumstances that led to the applicant taking a leave of absence.

Plaintiffs sought class certification pursuant to Rule 23(a) and (b)(2) of the Federal Rules of Civil Procedure on behalf of three classes, including: (1) EMS officers who are non-white, female, have received a reasonable accommodation, or have taken a leave of absence due to a disability or pursuant to FDNY time and leave policies; (2) non-white and/or female EMS officers; and (3) EMS officers who have received a reasonable accommodation or taken a leave of absence because of a disability and/or have taken a leave of absence pursuant to FDNY time and leave policies.

In support of their motion, Plaintiffs submitted an expert report from a forensic labor economist who concluded there was “statistically significant evidence of discriminatory promotional disparities” and that the statistical evidence showed that the common promotional policy “resulted in disparities that commonly disadvantaged the class.”  Id. at *7. Plaintiffs also submitted anecdotal evidence in the form of declarations from EMS officers testifying to their experiences with the City’s promotional processes.

Defendants opposed these theories and submitted rebuttal evidence with their own expert report. They argued that Plaintiffs’ expert’s analysis was flawed, largely because it was based in part on data that was irrelevant to the analysis and in other instances because it failed to consider other, relevant data.  Moreover, Defendants’ expert concluded that the relevant data led to a determination that, when evaluating promotions over the same time period, white men were actually less likely to be promoted than similarly-situated non-white officers; men were less likely to be promoted than women; and whites were less likely to be promoted than non-whites.

The Court’s Ruling Denying Class Certification

In denying Plaintiffs’ motion for class certification, Judge Lewis J. Liman of the U.S. District Court for the Southern District of New York conducted an extensive review of the promotional process at issue, as well as the expert reports and anecdotal evidence offered by the parties. Ultimately, the Court concluded that Plaintiffs had failed to sufficiently demonstrate the element of commonality under Rule 23(a)(2).

With respect to Plaintiffs’ disparate impact claims, the Court explained that Plaintiffs cannot simply point to the promotional process generally as the basis for the disparate impact, but must identify the “specific” employment practices allegedly responsible for the at-issue disparities.  In this case, there were several distinct steps in the promotional process, which combined subjective criteria with standardized eligibility criteria.  Significantly, an applicant could fail to be promoted at any one of these steps. As such, the Court opined that in order to state a disparate impact claim based on a failure to promote, Plaintiffs were required to identify which specific employment practice was responsible for the statistical disparities.

The Court reasoned that Plaintiffs’ expert’s analysis did not help them win the day, where it merely showed a racial and gender disparity with respect to the individuals holding leadership positions but failed to identify what aspect of the promotional process, if any, resulted in those disparities.  Moreover, the Court found that Plaintiffs’ anecdotal evidence did more harm than good, underscoring the individualized nature of each alleged incident of discrimination where each declaration identified a different form of discrimination and a different course of conduct.  The Court ultimately determined that Plaintiffs had failed to show that Defendants had used any of the cited employment practices to discriminate against the proposed class or that such practices had a discriminatory impact, holding that “the question of which of these specific employment practices has a discriminatory impact on the applicant is largely an individualized inquiry.” Id. at *25.

Plaintiffs’ disparate treatment claim fared no better for similar reasons, as the Court again noted that the statistical evidence from Plaintiffs’ expert did not offer “significant proof of a pattern or practice of unlawful discrimination” and failed to account for non-discriminatory explanations for any disparities.  Plaintiffs’ primary evidence, that of anecdotal evidence from declarants, was similarly insufficient to salvage their claims because it raised “individual rather than common questions.” Id. at *26.

Implications For Employers

The ruling in Local 3621 Of The EMS Officers Union emphasizes the value of crafting and implementing detailed and thoughtful employment policies and procedures that utilize both objective and subjective measures in an effort to reduce or eliminate the influence of potential bias (implicit or otherwise) when evaluating employees for promotional opportunities.  Moreover, ensuring that those policies and procedures are reduced to writing, provided to those employees who might have occasion to evaluate others for promotional opportunities, and implemented appropriately will provide a strong defense to discrimination claims and may, as it did here, serve to dismantle a potential class claim based on generalized allegations of process-based discriminatory conduct.

Ohio State Wins More Than Just Games, As The Ohio Court of Appeals Reverses Class Certification In Favor Of The University

By Gerald L. Maatman, Jr., Jennifer A. Riley, Shaina Wolfe

Duane Morris Synopsis In Smith v. Ohio State University, 2022-Ohio-4101 (Ohio App. Nov. 17, 2022), The Ohio State University successfully appealed an Ohio Court of Claim’s (“trial court”) Order granting class certification in a lawsuit brought by a former undergraduate student.  The former student alleged that when the university only offered online classes due to COVID-19, it breached its contract by keeping all the tuition payments from her and other students without giving them the robust in-person experience promised when they initially paid their tuition bills.  The Ohio Court of Appeals held that while the trial court has broad discretion in granting class certification, it failed to determine proof of injury and economic damages relative to the former student and potential class members.  In crafting a class certification defense strategy, especially in a breach of contract case where the injury and damages typically are in play, employers should focus on the lawsuit basics when opposing class certification, i.e., demanding that plaintiffs show causation and injury in fact.

Case Background

Plaintiff, a former college student, filed a lawsuit alleging that Defendant, The Ohio State University (“OSU”), breached its contract and received unjust enrichment in Spring 2020 by failing to partially refund students their tuition and fees after transitioning from their robust, in-person education to “subpar” online education during COVID-19.  Id. at 4-5.

In June 2021, Plaintiff moved for class certification.  Id. at 5.  After briefing and oral argument, the trial court granted Plaintiff’s motion and certified a class consisting of all undergraduate students enrolled in classes at Defendant’s Columbus campus during the Spring 2020 semester. Notably, the trial court found that the class suffered the same injury, i.e., losing the benefit of in-person classes and access to the campus.  Id. at 9-10.

In appealing the trial court’s decision, Defendant raised several arguments for why the trial court’s decision was incorrect. Significantly, Defendant’s main, and ultimately successful, arguments focused on the trial court’s failure to conduct the “rigorous analysis” required by Ohio Civil Rule 23 (like Federal Rule of Civil Procedure 23) in determining whether Plaintiff had satisfied the prerequisites for class certification.  Id. at 10-11.

The Court Of Appeals’ Ruling Reversing Class Action Certification

The Ohio Court of Appeals agreed with Defendant and reversed the trial court’s order granting class certification for three reasons.

First, the Court of Appeals found that the Plaintiff failed to present sufficient evidence of an economic injury.  Id. at 17-18.  Instead, the trial court simply assumed that a “benefit” was lost based only on the fact Defendant closed its campus and switched to remote classes and services in response to the pandemic.  Id. at 18.

Second, the Court of Appeals found that the trial court failed to consider Defendant’s arguments and evidence contesting proof of injury.  Id. at 18-19.  Defendant submitted an expert report that included evidence that students paid the same for in-person and online learning and that the in-person teaching modality carried the possibility of substantial remote instruction even in a normal semester.  Id. at 19. Meanwhile, Plaintiff submitted no expert testimony regarding how and or whether other students were injured in this case.  Id.  Indeed, Plaintiff’s expert’s report excluded any survey questions or consideration of market preferences during an emergency such as the pandemic that forced the closure.  Id.

Third, the Court of Appeals found that the trial court’s analysis of Plaintiff’s unjust enrichment claim was merely folded into the same generalized injury analysis without any individualized consideration.  Id. at 19-20.

In holding that the trial abused its discretion, the Court of Appeals reasoned that, “[t]he trial court, in assuming an injury from the fact of closure and termination of in-person classes, did not assess these complicated and difficult considerations, particularly as they relate to whether [Plaintiff] presented any common evidence — or even a method to possibly determine — that class members suffered an economic injury considering the effect of the pandemic.”  Id. at 20.  Further, the Court of Appeals opined that “having accepted the closure of campus and temporary termination of in-person classes and services as an injury per se, and having failed to consider how the pandemic affects class certification in this case at all, the trial court did not undertake a rigorous analysis with respect to the number and nature of individualized inquires that might be necessary to establish liability with respect to both tuition and fees.”  Id.

Implications

In class actions asserting breach of contract claims, it is not uncommon for plaintiffs to seek class certification before developing their case through affidavits from other individuals and expert testimony.  Employers can use this to their advantage by attacking causation and damages. This strategy may not only hinder a plaintiff from notifying potentially thousands of other putative class members of the claims, but also potentially saving money through limited discovery.

Massachusetts District Court Denies Class Certification and Grants Summary Judgment Because Franchisees Not Employees

By Gerald L. Maatman, Jr., Brandon Spurlock, and Shaina Wolfe

Duane Morris Takeaways – In Patel, et al. v. 7-Eleven, Inc., et al., 2022 WL 4540981, No. 17-11414 (D. Mass. Sept. 28, 2022), Judge Nathaniel Gorton of the U.S. District Court for the District of Massachusetts granted summary judgment in favor of 7-Eleven, as a franchisor, and denied Plaintiffs’ motion for class certification because franchisees were not employees under Massachusetts state law.  In analyzing the state independent contractor statute, the Court determined that the obligations the franchisees undertook pursuant to the franchise agreement did not amount to “services” for purposes of the statute and Plaintiffs, therefore, were not employees.  This ruling is important because it provides guidance for companies operating under a franchisor/franchisee business model on how to combat arguments that franchisee agreements create an employee/employer relationship and obligate franchisors to cover a myriad of legal costs for their franchisees.

Background Of The Case

Plaintiffs, a group of franchisee store owners and operators, brought a putative class action against 7-Eleven alleging that Defendant misclassified them as independent contractors in violation of the Massachusetts Independent Contractor Law. Id. at 1.  Two of the named Plaintiffs entered into franchise agreements directly with 7-Eleven and three as corporate entities.  Id.  The franchise agreements outlined the obligations of the franchisees and included language that the franchisee agreed to hold itself out to the public as an independent contractor.  Id.  Under the agreement, the franchisee also agreed to pay several types of fees to 7-Eleven, including a franchise fee, gasoline fee, and down payment fee.  Id. at 2.  Plaintiffs filed a class action in Massachusetts state court and Defendant removed it on diversity grounds.  Id.  Both parties filed cross-motions for summary judgment, and Plaintiffs filed a motion for class certification.  Id. The District Court granted summary judgment in favor of 7-Eleven, and Plaintiffs appealed to the First Circuit where the case was remanded to allow the District Court to first weigh on the issue, which the First Circuit certified as “[w]hether the three-prong test for independent contractor status … applies to the relationship between a franchisor and its franchisee…” Id.

On remand, the District Court analyzed the elements for the independent contractor test under Massachusetts law, including: (1) freedom from control and direction; (2) service is performed outside the usual course of business; and (3) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service.  Id. at 3.  Defendant argued that franchisees do not perform services for 7-Eleven, and in fact, 7-Eleven actually provides services to the franchisee in exchange for payment; and that 7-Eleven was not a direct employer where the franchise agreement was entered into by corporate entities.  Id. at 4.

The District Court based its ruling on the threshold inquiry of determining whether the individual performs any service for the alleged employer.  Id.  Plaintiffs argued that because the franchise agreement required them to work full time in the store, operate the store 24 hours a day, record inventory sales, wear approved uniforms and use 7-Eleven payroll system, in addition to submitting cash reports and depositing receipts, they should be deemed employees, not independent contractors.  Id. at 5.  The District Court, however, was not convinced that the contractual obligations outlined in the franchise agreement, alone, constituted services under Massachusetts law regarding independent contractors. Id.  Moreover, the District Court opined that although the parties do have mutual economic interests, even though both profit from the franchise stores’ revenue, that mutual interest was not enough to establish that plaintiffs provide services to support an employee relationship. Id.

In short, the District Court reasoned that where a franchisee is merely fulfilling its contractual obligations under a franchise agreement, that by itself does not refute the independent contractor status.  Id.  The District Court therefore granted 7-Eleven’s motion for summary judgment and denied Plaintiffs’ motion for class certification.  Id. at 6.

Implications For Employers

For those companies with franchisee operations, this ruling supports the position that obligations under a franchise agreement requiring the franchisee to perform certain tasks does not establish an employment relationship.  And the fact that the franchisor provides services to the franchisee for payment actually cuts against the employee designation.  Further, the simple fact of mutual benefit from business revenues does not help establish employee status under these circumstances.  Although an appeal from Plaintiffs is anticipated, the District Court’s analysis offers solid guidance for franchisors who are operating under similar franchise agreements.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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