Court Holds That 4th Amendment Applies To The Government's Enforcement Litigation Tactics During A Workplace Bias Investigation

Posted by Seyfarth Shaw LLP on December 24, 2011

600px-US-DeptOfLabor-Seal_svg(8).pngBy Alex S. Drummond and William Miles

The Fourth Amendment to the U.S. Constitution guarantees the “right of the people to be secure in their persons, houses, paper, and effects against unreasonable searches and seizures,” and provides that no warrant shall issue with probable cause. In a recent decision in Bank of America v. Hilsa L. Solis, 1:09-CV-2009 (D.D.C. December 13, 2011), the Court extended these protections to an Office of Federal Contract Compliance request for documents during an investigation into an employer’s employment practices under Executive Order No. 11246. The ruling underscores the stakes - and considerable legal issues - underlying governmental workplace enforcement actions.

Overview Of Executive Order No. 11246 And How It Is Enforced

Executive Order No. 11246 provides that government contractors are prohibited from discriminating against any employee or applicant for employment because of race, color, religion, sex, or national origin. Contractors covered by Executive Order No. 11246 must develop and maintain affirmative action programs for each of their facilities. The Office of Federal Contract Compliance Programs ("OFCCP") was established to enforce this Executive Order per 41 C.F.R. §§ 60-1.2, 60-1.20(a). The OFCCP is within the U.S. Department of Labor ("DOL").

To enforce this Executive Order, the OFCCP is authorized to conduct compliance evaluations. One compliance evaluation investigation procedure used by the OFCCP is a “compliance review,” which is comprised of a “comprehensive analysis of the hiring and employment practices of the contractor, the written affirmative action program, and the results of the affirmative action efforts undertaken by the contractor.” 41 C.F.R. § 60-1.20(a)(1). 

A compliance review may proceed in three stages, including: (i) a desk audit; (ii) an on-site review; and (iii) when necessary, an off-site analysis. Id. A desk audit is normally conducted at OFCCP offices, and involves a request by the OFCCP of specific documents from the contractor, including the contractor’s affirmative action plan and supporting documentation, and a review of those documents to determine whether all elements required by the regulations are satisfied.  41 C.F.R. § 60-1.20(a)(1)(i). If the OFCCP determines that a follow-up investigation is needed based on the information received during the desk audit, it can demand an on-site review be conducted at the contractor’s establishment.  41 C.F.R. § 60-1.20(a)(1)(ii). These on-site reviews usually involve examining the contractor’s personnel and employment policies, inspecting and copying documents related to employment actions, and interviewing employees, supervisors, managers, and hiring officials. Id.

To select contractors for the compliance review, the OFCCP maintains a random computer-generated list of government contractors in a given geographic area. Under its internal regulations, the OFCCP is supposed to select contractors from the list in strict sequential order. In other words, the OFCCP is required to start at the top of the list and work its way through each contractor one-by-one before going on to the next name of the list.

Under the Obama Administration, the DOL has stepped up the OFCCP's enforcement efforts relative to employers covered by Executive Order No. 11246.

Facts Of The Bank Of America Case

In early 2004, the OFCCP notified Bank of America that it had selected the bank’s facility located in Charlotte, North Carolina for a compliance review, and it requested a number of documents from Bank of America as part of its proposed desk audit. In the notice, the OFCCP warned that it could file an enforcement action if Bank of America refused to cooperate in the desk audit.   

In response to the OFCCP’s letter, Bank of America agreed to cooperate with the OFCCP, but it requested that the OFCCP first provide it with information about how the OFCCP had come to select this facility for the desk audit. The OFCCP responded that it had selected the facility based on its internal selection procedures. Based on the OFCCP’s representation, Bank of America provided the documents requested by the OFCCP. 

After reviewing these documents, the OFCCP requested that an on-site investigation be conducted because it determined that the initial information provided by Bank of America demonstrated preliminary evidence of pay discrimination between men and women. When the OFCCP requested the on-site investigation, Bank of America refused to cooperate further until the OFCCP could show definitively how it chose this facility to be selected initially for the desk audit.

Rather than provide this information to Bank of America, the OFCCP filed an enforcement action with the DOL to gain access to Bank of America’s facility. During the discovery stages of the enforcement action, Bank of America learned that the OFCCP had not complied with its internal selection regulations because there were 20 other employers above Bank of America on the OFCCP’s selection list that the OFCCP had made no attempt to investigate prior to contacting Bank of America about the desk audit. Bank of America argued that the information the OFCCP obtained from the employer was in violation of the Fourth Amendment because the OFCCP had no specific evidence of a violation of the Executive Order and because the OFCCP had selected the facility without relying on neutral criteria (i.e., by correctly using the selection list).

In response, the OFCCP argued that the Fourth Amendment did not apply to the desk audit portion of the compliance review. As to the on-site portion of the compliance review, the OFCCP conceded that the Fourth Amendment applied to this portion of the compliance review, but it argued that the on-sight review was supported by probable cause based on the information it had secured as part of the desk audit. Additionally, even if the Fourth Amendment applied to the desk audit portion of the compliance review, the OFCCP argued that Bank of America waived its Fourth Amendment rights by voluntarily producing the documents requested.

The DOL rejected Bank of America's arguments, and its Administrative Review Board upheld the administrative enforcement complaint over the materials sought from Bank of America. The DOL likewise notified the employer that its failure to comply with the order would subject the company to termination or suspension of its current governmental contracts. Id. at 11. Subsequently, Bank of American filed an action in the U.S. District Court for the District of Columbia pursuant to the Administrative Procedure Act, 5 U.S.C. § 702 et seq., seeking relief from the DOL's order.

The Court's Analysis

Relying upon holdings in other contexts from the Supreme Court in Donovan v. Dewey, 452 U.S. 594, 598 (1980), and Marshall v. Barlow’s Inc., 436 U.S. 307, 311 (1978), the Court began its analysis by agreeing with Bank of America's position that the OFCCP's desk audit amounted to an “administrative search” and that Fourth Amendment’s protections applied to this portion of the compliance review. Id. at  13-14. According to the Court, the Government can satisfy the Fourth Amendment’s standards only if can demonstrate that the request is based on "specific evidence of an existing violation" or a showing that the search is pursuant to "an administrative plan containing specific neutral criteria." Id. at 27. Because the OFCCP could not show that it had specific evidence of a violation (prior to receiving the information from the desk audit) and because the OFCCP could not demonstrate that it selected the bank’s facility based on neutral criteria, the Court determined that the OFCCP was not entitled to the information requested as part of the desk audit under the Fourth Amendment. Id. at 29.

Nevertheless, the Court determined that the OFCCP had legally obtained the information as part of the desk audit because Bank of America had voluntarily consented to the search by producing the documents initially requested by the OFCCP. The Court rejected two additional arguments raised by Bank of America on the waiver issue. First, Bank of America argued that it was coerced to consent to the search based on the OFCCP’s threat of litigation if it did not comply with desk audit. Second, Bank of America argued that it only produced the documents based on the OFCCP’s misrepresentation that the OFCCP had selected Bank of America based on neutral criteria. In rejecting these two contentions, the Court reasoned that Bank of America was a sophisticated company, it knew its rights under the DOL regulations, and it should have made greater effort to protect those rights before producing the documents to the OFCCP. Id. at  31-34.

Implications For Employers

Notwithstanding the result, the Bank of America decision is a positive development for employers because it extends the Fourth Amendment’s probable cause requirement to the Government’s requests for documents during workplace investigations. If the Government selects an employer for an OFCCP desk audit, an employer can demand that the Government prove that it selected the employer through a neutral selection process; thus, the Government cannot arbitrarily chose an employer for an OFCCP compliance review. The decision makes clear, however, that an employer must be diligent in protecting these Fourth Amendment rights or else it risks a ruling in a future enforcement action that that it has waived those rights. 

Court Rules That Dukes Does Not Justify Limits On Discovery In A Gender Discrimination Class Action

Posted by Seyfarth Shaw LLP on August 14, 2011

By Alex Drummond and Laura Maechtlen

The Supreme Court's decision in Dukes v. Wal-Mart Stores, Inc., 131 S. Ct. 2541 (2011), continues to find its way into briefing for the nuts and bolts of many class actions. The latest is a discovery dispute in Artis, et al. v Deere & Co., Case No. 10-CV-5289 (N.D. Cal. Aug. 8, 2011), in which the Court rendered a plaintiff-friendly ruling bearing upon the type of discovery that an employer must face in a nationwide workplace bias class action.

Plaintiff Holly Artis filed a putative class action against defendants Deere & Company and John Deere Landscapes, Inc. for alleged nationwide gender discrimination in hiring. The putative class comprised “all female job applicants and deterred applicants for entry level sales, customer service and shipping and receiving employment by Deere’s Equipment Operations divisions." 

A discovery dispute arose when Plaintiff sought various categories of documents from Defendants, including job applications and other sources of names, addresses, telephone numbers, and email addresses of putative class members and percipient witnesses. Plaintiff argued that she was entitled to an order compelling Defendants to produce the contact information because it was necessary to assemble information needed to meet the elements required for class certification under Rule 23. Specifically, Plaintiff argued the discovery could lead to information that would substantiate the class allegations, including: “(1) that the class is sufficiently numerous; (2) that Defendants provide female applicants and potential applicants discriminatory, inconsistent, or inaccurate statements about the job requirements and qualifications; (3) that Plaintiff’s claim of injury resulting from Defendants’ actions is typical of the class; and (4) that Defendants engage in a pattern or practice of discriminating against female applicants.” 

Defendants argued that, under Dukes, the individualized information that putative class members may possess is irrelevant to class certification. Specifically, Defendants argued that Plaintiff must identify a company-wide evaluation method that can be charged with bias or offer significant proof of a general policy of discrimination and, without that, Plaintiff is not entitled to the discovery at issue.  Defendants also argued that Plaintiff offered no evidence to suggest that her experience is anything other than the experience of one applicant who applied for one position at one branch in Northern California, and that if her experience was anything other than the experience of one individual, she should have evidence of the foundational policy upon which her claims are based. Defendants further claimed that individuals who applied for employment had a legitimate expectation of privacy in their identity and contact information.

A Magistrate Judge issued an order compelling defendants to produce the contact information of all putative class members. Defendants sought review of the Order, and Judge William Alsup upheld the ruling. The Court disregarded Defendants' arguments that the information violated third parties' rights to privacy, on the basis that the Magistrate "carefully balanced" the "compelling public need" for discovery with the "fundamental right to privacy." Id. at 3. Moreover, the Court noted, Defendants were free to request a protective order.

More importantly, the Court held that pre-certification discovery of putative class members’ contact information is proper when plaintiff either makes a prima facie showing that Rule 23 is satisfied or when plaintiff shows “that discovery is likely to produce substantiation of the class allegations.” Id. at 2. The Court found that the Magistrate Judge had found that plaintiff had established a prima facie case for class certification, by making findings as to numerosity, commonality, typicality, and adequacy representation under Rule 23(a), as follows: (1) the complaint alleged that hundreds of former female job applicants were discriminated against, making a prima facie showing of numerosity; (2) a prima facie showing of commonality was made among female applicants who allegedly were provided with “discriminatory, inconsistent, or inaccurate statements about the job requirements and qualifications;” (3) the complaint presented a prima facie showing of typicality in that plaintiff’s claim of injury -  denial of employment, wages, and benefits - was typical of the class; and (4) the interests of the putative class members were implicated by plaintiff’s allegations that defendants engage in a pattern or practice of discriminating against female job applicants. Id. Notably, in addressing Defendants' arguments based on Dukes, the Court found that this argument tended to go "to the merits of Plaintiff’s claims, which are not appropriately addressed in the context of this discovery dispute." Id.

This ruling, however, appears to ignore the key holding in Dukes, namely that plaintiffs seeking to certify a class under Rule 23 must show significant proof of a company-wide evaluation or general policy of discrimination. Dukes further recognized that inquiry into the merits is entirely permissible when making determinations under Rule 23; thus, any concern that this showing would "tend to go" toward the merits appears inconsistent with the Supreme Court's analysis. Indeed, based on Dukes, judges should consider and resolve any issues of fact that are necessary to determine whether one or more elements of Rule 23 are satisfied, regardless of whether those issues may overlap or be identical to one or more issues to be decided in ruling on the merits of the plaintiff’s claims. 

For these reasons, the Court's decision in Artis overlooked key aspects of Dukes and arguably allowed overly broad discovery without requiring the plaintiff to produce "significant proof" of a company-wide policy that affected the discrimination claims. Plaintiff lawyers in class cases will certainly look to Artis as justification for broad discovery requests post-Dukes.  

California Court Of Appeal Limits Plaintiffs' Request For Discovery To Locate New Class Representatives In A "Headless" Class Action

Posted by Seyfarth Shaw LLP on May 05, 2011

By Kari Levine and Laura Maechtlen

In a ruling on April 25, 2011, the California Court of Appeal for the Fourth Appellate District in Starbucks v. Superior Court (Lords), No. G043650 (Cal. App. Apr. 25, 2011) [link to ruling], overturned a trial court's order allowing a fishing expedition to find class representatives in a "headless" class action. The ruling is instructive for defense of class actions.

On behalf of an estimated 135,000 job applicants, three named plaintiffs sought $26 million in statutory penalties from Starbucks alleging that a preprinted Starbucks' job application violated provisions of the California Labor Code, which prevent employers from seeking "from any source whatsoever" any records pertaining to minor marijuana convictions sustained by job applicants or employees. In an earlier opinion, Starbucks Corp. v. Superior Court, 168 Cal.App.4th 1436 (2008) (Starbucks I), the California Court of Appeals held that the plaintiffs did not have standing to represent the proposed class because none of the plaintiffs had been convicted of a marijuana-related crime.

Following Starbucks I, the named plaintiffs were dismissed as class representatives on summary judgment. However, on a discovery motion, the trial court permitted the plaintiffs to file an amended complaint to include only job applicants with marijuana convictions. The trial court then allowed class counsel to conduct further discovery to find a "suitable" class representative for the "headless" class action. To achieve this, Starbucks was ordered by the trial court to randomly review job applications until it identified job applicants with prior marijuana convictions. Starbucks was then required to disclose the names to plaintiffs' counsel, unless the individuals with marijuana convictions affirmatively opted out to a neutral administrator.

Starbucks appealed the discovery order that permitted discovery of the identities of potential class members who may become substitution plaintiffs in the place of the named plaintiffs. The Court of Appeal reviewed the decision by acknowledging that, before allowing class counsel to find a viable class representative, trial courts must apply a balancing test - called the "Parris balancing test" after a leading case titled Parris v. Superior Court, 109 Cal. App. 4th 285 (2003) - and weigh the actual or potential abuse of the class action procedure against the potential benefits that might be gained.

The Court of Appeal acknowledged that plaintiffs "admittedly have made no showing that any of some 135,000 Starbucks applicants have been 'aggrieved' as a result of the job application form" and "not a single person has stepped forward who fits within the statutory criteria." The Court of Appeal further acknowledged that plaintiffs' counsel underscored the need to protect the privacy rights of marijuana offenders and to avoid any situation where they would be compelled to "relinquish privacy." The Court of Appeal then recognized the obvious: "we are at a loss to understand how plaintiffs can square these concerns...with the proposed discovery. One can only imagine the potential consternation in a household where a Starbucks applicant with a marijuana-tinged past is 'outed' to a spouse, child or roommate who opens the letter and reads about a lawsuit involving job applicants with prior marijuana convictions." On this basis, the Court of Appeal concluded that the trial court abused its discretion in allowing the discovery.

The Court of Appeal distinguished CashCall, Inc. v. Superior Court, 159 Cal.App.4th 273 (2009),  a case filed against a collection agency, alleging that the company secretly monitored debtors phone calls. In that case, the plaintiffs who filed the action did not have their calls monitored. The Court of Appeal in CashCall approved a procedure by which those whose calls had been monitored would be informed of that fact and permitted to join the litigation. In that case, the aggrieved debtors had no alternative means of protecting their rights because they would not otherwise know that their calls had been monitored. In contrast, the Starbucks’s job applicants were free to "effectuate the legislative purposes underlying Labor Code section 432.8 by bringing individual actions, filing, if necessary, through Doe pleadings, and recovering not only actual damages or a statutory penalty, whichever is greater, but also attorney fees."

Counsel for Starbucks asked that the Court of Appeal go further, seeking a ruling that plaintiffs without standing should never be allowed to conduct discovery to find a plaintiff with standing, arguing that it was necessary to prevent "encouraging attorney-driven lawsuits and sham lawsuits filed in the names of plaintiffs who are placeholders until discovery can turn up a viable plaintiff." However, the Court of Appeal refused to flatly prohibit "headless class discovery."

The Starbucks ruling provides guidance on the scope of discovery allowed in "headless" class actions in California, and may assist employers to limit pre-certification class discovery to find a viable class representative.

The 2011 Workplace Class Action Report Is Here

Posted by Gerald L. Maatman, Jr. on January 05, 2011

WCA2011.jpgThe year just ended was a seismic one for employment-related class action litigation, paving the way for more far-reaching judgments, court rulings, and changes to class action law in 2011. Furthermore, in 2010, the value of major employment discrimination class action settlements increased four-fold over the prior year and the top ten settlements of wage & hour, ERISA, and governmental enforcement class actions increased to $1.16 billion, the highest amount ever.

The “tipping point” aspect of these changes is featured in the 2011 edition of Seyfarth Shaw’s Workplace Class Action Litigation Report. The 664-page Report, our Seventh Annual Edition, examines 849 decisions rendered in 2010 against employers in state and federal courts, including private plaintiff and government enforcement actions. The Report is the sole compendium in the U.S. dedicated exclusively to workplace class action litigation, and has become to "go to" research and resource guide for businesses and their corporate counsel facing complex litigation.

A preview copy is available here, and can be ordered here.

While shareholder and securities class action filings experienced only a slight uptick in 2010, employment-related class action filings increased dramatically.  Anecdotally, surveys of corporate counsel confirm that workplace litigation – and especially class actions, multi-plaintiff lawsuits, and government enforcement litigation – continues to drive corporate legal budget expenditures, as well as the type of legal dispute that causes the most concern for their companies.

In terms of key decisions, there was no class action ruling in 2010 quite like Dukes, et al. v. Wal-Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010), a Title VII gender discrimination case challenging pay and promotions involving 1.5 million class members.  On April 26, 2010, an en banc panel of the Ninth Circuit affirmed the certification order in Dukes by a 6 to 5 vote.  A detailed analysis of the Ninth Circuit ruling in Dukes is contained in Appendix I at page 617 of the Report.  Wal-Mart subsequently filed a petition for certiorari with the U.S. Supreme Court, which was granted on December 6, 2010.  A future ruling by the Supreme Court in Dukes is likely to be one of the top class action developments in 2011 and beyond.

Employment discrimination, ERISA, and FLSA litigation filings increased over the past year.  FLSA and employment discrimination cases spiked sharply, and outpaced ERISA filings.  Based on statistics from PACER filings with the Administrative Office of the U.S. Courts, employment discrimination lawsuits increased to 14,559 in 2010 from 13,720 in 2009; ERISA lawsuits increased to 9,038 in 2010 from 8,944 in 2009; and FLSA lawsuits increased to 6,761 in 2010 from 6,120 in 2009.  Since the majority of FLSA filings were on behalf of groups of employees, wage & hour class actions and collective actions out-paced filings of class actions for employment discrimination and ERISA violations.  In turn, while plaintiffs continued to achieve initial certification of wage & hour collective actions, employers also secured several significant victories in defeating conditional certification motions and obtaining decertification of § 216(b) collective actions.  Given the trickle-down phenomenon of class action settlements (and the increased awareness of wage & hour issues by workers), it is expected that the pursuit of nationwide FLSA collective actions by the plaintiffs’ bar will continue in 2011.

A new case law trend in 2010 focused on workplace arbitration agreements and their enforceability and impact in the class action context. While no one suggests that the sun is setting on workplace class actions, the Supreme Court’s ruling in Stolt-Nielsen S.A., et al. v. Animalfeeds International Corp., 130 S. Ct. 1758 (2010), arms employers with additional ammunition to confront class action litigation through drafting of comprehensive workplace arbitration programs. Stolt-Nielsen quickly spawned several rulings in employment discrimination and wage & hour class actions, thereby demonstrating the importance of this development for employers utilizing arbitration agreements.  This development is likely to accelerate, as the Supreme Court considers state law limits on class action waivers in Concepcion, et al. v. AT&T Mobility, a case scheduled for decision in the Spring of 2011.

On the wage & hour front, a confluence of factors contributed to an ever-increasing number of claims. In one respect, 2010 might be termed the “Year of the Misclassified Worker” class action lawsuit based on end-of-the-year figures that show a sharp increase in crackdowns this year by state and federal authorities, and filings by class action lawyers in pursuing private lawsuits against companies that allegedly misclassify employees.  Employers utilizing independent contractors were the focus of intense litigation scrutiny on these fronts. Approximately 20 states and scores of municipalities passed laws in the past two years that make it easier to force employers to reclassify independent contractors as employees and seek unpaid taxes, or authorizing claims for “wage theft.”  Likewise, the DOL’s enforcement litigation resulted in employers paying $6.5 million in back wages to 5,261 employees in fiscal 2010, up sharply from $2.6 million obtained for 2,190 employees in 2009.  The DOL and Internal Revenue Service (“IRS”) also increased their budgets and staffs to identify and audit employers and their classifications of workers, as well as implementing its new “Plan/Prevent/Protect” enforcement strategy.

Due to the enormous financial stakes, trials of class actions continue to be rare, and verdicts in these trials rarer still.  However, 2010 witnessed the largest employment discrimination class action trial verdict ever – the $250 million verdict in Velez, et al. v. Novartis Pharmaceuticals Corp., Case No. 04-CV-9194 (S.D.N.Y.) following a seven-week trial in the Spring of 2010.  After the verdict, the parties promptly settled the class action for $175 million on July 14, 2010.  The settlement is one of the largest employment discrimination class action settlements ever.

If trials of class actions were rare, settlements of class actions in 2010 reflected a continuing trend from past years, in which significant monetary payments were made in mega-class actions with nationwide classes.  Settlements in FLSA collective actions and ERISA class actions once again outpaced employment discrimination class action settlements in terms of overall settlement values.  In turn, settlement amounts in wage & hour class actions and government enforcement lawsuits experienced significant increases over 2009 figures.  In closing the year, plaintiffs secured a $57 million verdict in a wage & hour class action in Rekhter, et al. v. Washington Department of Social And Health Services, Case No. 07-2-895-5 (Thuston County, WA), on December 20, 2010.

Finally, case law developments under the CAFA accelerated in 2010.  The statute has had profound effects on litigation strategy and the structuring of underlying class actions.  In this context, the CAFA’s impact on workplace class actions is both varied and evolving.  Class actions and collective actions under Title VII, the ADEA, the FLSA, and ERISA typically are brought in federal court.  The CAFA may have limited impact on strategic decisions in those cases relative to choice of venue in a federal court or state court.  Class actions in state law-based wage & hour litigation are another matter.  The plaintiffs’ bar and defense bar alike continue to confront novel CAFA issues in wage & hour cases, as the fight over venue is often a key driver of exposure and risk.  On the one hand, employers sued in state law wage & hour class actions are increasingly confronted by plaintiffs’ lawyers seeking to avoid removal to federal court by various stratagems, including prayers for relief of less than $5 million, the filing of multiple “baby” class action claims on behalf of fewer than 100 plaintiffs, and limiting the scope of the class to residents of one state.  On the other hand, defense counsel seeking (often successfully) to dismiss state law claims pursued by plaintiffs with FLSA claims in “hybrid” wage & hour class actions in federal court argue that judges should not exercise supplemental jurisdiction over the state law claims.  Federal courts, in turn, are increasingly confronted with questions of whether original jurisdiction exists under the CAFA over such hybrid state law claims, and employers also may face a two front litigation war – one in federal court and the other in state court – depending on resolution of those CAFA issues.  These litigation issues continue to shape class action practice and defense strategy, and are likely to do so for the foreseeable future.

 

Closing Thoughts On Workplace Class Action Developments In 2010

Posted by Gerald L. Maatman, Jr. on December 30, 2010

WCA2011.jpgSeyfarth Shaw's 2011 Workplace Class Action Report is coming soon! The report is the sole compendium in the U.S. dedicated exclusively to workplace class action litigation. Our loyal readers can expect to receive their copy in several weeks, with rulings and case law developments reviewed and analyzed through December 31, 2010.

To say the least, 2010 was a significant year for workplace class action litigation. We will address these developments in detail in the upcoming Report, and this post provides a preview.

 

Key developments over the past year manifest multiple trends that impact employers.

First, 2010 was the year of big headlines in employment discrimination class actions.  Those headlines involved the biggest class action trial verdict ever – the $250 million verdict in Velez, et al. v. Novartis in May of 2010 – and its subsequent settlement two months later for $175 million.  As success by the plaintiffs’ bar often prompts copy-cat litigation filings, these headlines are likely to encourage more class actions in the future, as well as enhanced settlement demands by the plaintiffs’ bar to resolve their cases.

SupremeCourt.jpgSecond, 2010 also spawned landmark Rule 23 decisions; none was more momentous than the ruling by the Ninth Circuit in Dukes, et al. v. Wal-Mart Stores, Inc. on April 26, 2010, and the subsequent grant of certiorari in the case by the U.S. Supreme Court on December 6, 2010.  In a 6 to 5 en banc opinion, the Ninth Circuit upheld, in part, certification of the largest employment discrimination class action ever – a pay and promotions class of approximately 1.5 million female workers.  The Supreme Court’s grant of certiorari put the Ninth Circuit’s decision in flux and other decisions on hold, while the class action bar awaits the next chapter in the litigation.  The Supreme Court’s expected ruling in Dukes in 2011 is apt to be a bellwether decision in areas that the Supreme Court has left mostly to federal circuit courts of appeals in recent years. 

Third, the continued economic challenges and low hiring rates during 2010 fueled more class action and collective action litigation.  Most significantly, the plaintiffs’ bar increased the pace of FLSA collective action filings seeking recovery for unpaid overtime wages.   These conditions spawned more employment-related case filings, both by laid-off workers and government enforcement attorneys.  In turn, this resulted in higher settlement numbers (especially in government-initiated lawsuits and wage & hour litigation).  Even more class action litigation is expected in 2011, as businesses continue to re-tool their operations.

Map.jpgFourth, by sheer numbers, wage & hour litigation continued to far out-pace all other types of workplace class actions.  This trend was also manifest in more wage & hour class action and collective action decisions by federal and state court judges than any other area of workplace litigation.  It also reflected the fact that in terms of case filings, collective actions pursued in federal court under the Fair Labor Standards Act (“FLSA”) outnumbered all other types of private class actions in employment-related cases.  As a result, FLSA collective actions produced more rulings in 2010 than class actions for employment discrimination or under ERISA.  Significant growth in wage & hour litigation also was centered at the state court level, and especially in California, Florida, Illinois, New Jersey, New York, Massachusetts, Minnesota, Pennsylvania, and Washington. This trend is likely to continue in 2011.

Fifth, as Democratic legislative initiatives for labor and employment reform stalled, in the wake of Republican Congressional gains, the Obama Administration continued to ramp up its enforcement efforts through the U.S. Equal Employment Opportunity Commission (“EEOC”) and the U.S. Department of Labor (“DOL”).  The Obama Administration’s emphasis on administrative regulation and enforcement lead to more government-initiated litigation over workplace issues.  Those efforts are expected to intensify as the Administration’s policy goals, which may be thwarted in the Congress, are advanced through agency regulation and government enforcement litigation.  Many state labor departments are following this lead. Increased funding for the DOL and the EEOC also resulted in the recruitment and training of more DOL and EEOC attorneys and investigators.  It is expected that employers will encounter more investigations – and more governmental enforcement lawsuits – in 2011 as the augmented staffs of the DOL and EEOC carry out their law enforcement functions.  Likewise, when measured by monetary recoveries, government enforcement litigation resulted in higher settlement amounts for workplace litigation than past years.  Even more aggressive government enforcement litigation is likely in the coming year.

scalesofjustice.jpgSixth, the Class Action Fairness Act of 2005 (“CAFA”) continued to have significant effects on workplace litigation, and most significantly on wage & hour class actions filed in state court.  The past twelve months saw evolving case law developments on jurisdictional issues under the CAFA.  As the plaintiffs’ bar continues to devise techniques to adapt to the CAFA, rulings on the scope, meaning, and application of this law, of relatively recent vintage, have occurred at a surprising rate.  In this respect, the development of CAFA-related law continued to mature quickly in the Ninth Circuit, as the high volume of California-based wage & hour class action filings resulted in a deluge of CAFA removals in California federal courts in 2010.

Seventh, and finally, the financial stakes in workplace class action litigation increased in 2010.  Plaintiffs’ lawyers have continued to push the envelope in crafting damages theories to expand the size of classes and the scope of recoveries.  These strategies resulted in a series of massive settlements in nationwide class actions, particularly in the context of wage & hour litigation.  This trend is also unlikely to abate in 2011. 

Private Third-Party Financing Of Class Actions

Posted by Gerald L. Maatman, Jr. on November 17, 2010

Co-authored by Lorie Almon and Gerald L. Maatman, Jr.

A recent New York Times article is creating a buzz in the class action world - the article discusses the phenomenon of how private third parties (such as banks, financers, and lenders) are "investing" in plaintiffs' class action firms relative to the prosecution of class actions. The "smells like raw tuna" reaction of many manifests itself on multiple levels. It creates a platform whereby plaintiffs' counsel can use investor money to finance bigger and more ambitious class action filings, and alters the typical settlement dynamics in which lead plaintiffs can receive advance payments from the third-party during the litigation. The subject surfaced during the approval process for the massive class action in the U.S. District Court for the Southern District involving an estimated 10,000 workers who stand to share in a proposed $650 million plus settlement for people sickened after working on the World Trade Center site.  Judge Hellerstein required plaintiffs' counsel - who stand to secure an multi-million pay day from the settlement - to absorb the financing costs from the financing done in that settlement in lieu of passing the lending costs on to the class members. View Approval Order. We expect this phenomenon may well accelerate and that the scrutiny of courts and regulators likewise will increase. Meanwhile, corporations will face enhanced litigation pressures with the pace and size of class action filings.

Oral Argument In AT&T Mobility v. Concepcion

Posted by Gerald L. Maatman, Jr. on November 10, 2010

The biggest news on the class action front is that the Supreme Court heard oral argument yesterday in AT&T Mobility v. Concepcion. That case presents the issue of whether class action waivers in consumer contracts are enforceable even when state contract law bars such waivers. The company is challenging a Ninth Circuit ruling in AT&T Mobility v. Concepcion., 584 F.3d 849 (9th Cir. 2009), which struck down its class action waiver in a consumer arbitration agreement as unconscionable under California law. The Ninth Circuit held that the Federal Arbitration Act ("FAA") does not preempt California law on this issue. California law invalidated the class action waiver on the basis of unconscionability where the agreement is a contract of adhesion drafted by the party with superior bargaining power, individual disputes predictably involve small amounts of damages, and the party with superior bargaining power has prohibited class claims to avoid facing a large number of small claims.

Though the case involves consumer fraud issues in cell phone contracts involving claims of less than $10, the stakes are high and the Supreme Court's eventual ruling also may impact employers. At issue is whether the Federal Arbitration Act preempts states from conditioning the enforcement of an arbitration agreement on the availability of particular procedures — in this instance, class-wide arbitration — when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims. Multiple amicus groups for employees have submitted briefs arguing that a ruling in favor of AT&T Mobility ultimately will harm employees and insulate employers from class claims if they bind workers to arbitration agreements which do not allow for class-wide litigation. The oral argument on November 8 mentioned this potential impact; Justice Kagan's questioning referred to the supposed evils of class arbitration and how no business would want it (due to limited review of an arbitration ruling,, etc.), and Justice Scalia made the interesting point that the real issue to him is whether corporate defendants are being coerced into abandoning regular arbitration. In essence, this boils down to a policy choice: because no rational business would agree to explicit class arbitration, if the Supreme Court rules for the consumer side, arbitration may be dead if the only way to have an enforceable arbitration agreement is to allow for class-wide dispute resolution.

The National Workrights Institute, an advocacy group for employee rights, filed an amicus brief in support of Plaintiffs; it argued that class actions like the one filed by the Concepcions are an essential procedure for the vindication of the rights of claimants of modest means with modest claims. The group argued that without the option of participating in class action litigation, employees with comparatively small claims against employers would be at a disadvantage in pursuing claims for discrimination or wage and hour violations.

On the other hand, the Equal Employment Advisory Council, an association of employers, submitted an amicus brief contending that permitting class arbitration where the parties have agreed not to do so would defeat one of the most mutually advantageous purposes of arbitration - lower cost resolution of disputes. The EEAC argued that the Ninth Circuit's ruling, in effect, establishes an across-the-board ban on class arbitration waivers, and also undermines most, if not all, of the practical benefits that inure to employers and employees alike by agreeing to arbitrate workplace disputes."

Stay tuned - this future ruling will be important to all employers with workplace arbitration agreements.

Seventh Circuit Enjoins Copycat Class Action

Posted by Dana Howells on November 08, 2010

In the latest installment of a long running saga involving the stainless steel drums in Sears Kenmore clothes dryers,  the U.S. Court of Appeals for the Seventh Circuit utilized the All Writs Act, 28 U.S.C. 1651(a) (link) to halt class action litigation pending in the U.S. District Court for the North District of California, as well as future class actions involving the same parties, attorneys, and subject matter. The lucid 29-page opinion by Judge Posner - in Thorogood v. Sears, Roebuck & Co., Case No. 10-2407, 2010 U.S. App. Lexis 22807, __ F.3d__(7th Cir. Nov. 2, 2010).  “Thorogood III” - highlights how class counsel’s use of far-reaching, burdensome discovery for settlement leverage justifies enjoining a second attempted class action. 

The latest decision was the third appeal to the Seventh Circuit. It contains important lessons for employment class actions, especially in the wage & hour context where plaintiffs' counsel often file multiple class actions in different venues.

Continue Reading

Avoiding Endless Jurisdictional Ping Pong

Posted by Dana Howells on October 28, 2010

ping_pong.jpgWhat happens when a wage and hour class action, removed to federal court under the Class Action Fairness Act of  2005 (“CAFA”), 28 U.S.C. §§1332(d) and 1453 fails certification as a class action? What if after remand, the same plaintiffs revive the class claims in state court?  A growing number of  federal courts have concluded that if class certification is not granted after CAFA removal,  the litigation should stay in federal court. The most interesting example putting an end to the ping-pong of removal and remand is the Ninth Circuit’s decision in United Steel, Paper & Forestry, etc., et al v. Shell Oil Company, 602, F.3d 1087 (9th Cir.2010) (one of Seyfarth Shaw LLP’s own contributions to the ever-expanding universe of class action law). The union brought a wage and hour class action in California state court against three oil refineries, alleging violation of meal period and rest break requirements, failure to provide timely and accurate wage statements, and failure to pay wages due on termination. The refineries removed the action to federal court under CAFA. The puntative class action as originally filed more than adequately satisfied  28 U.S.C. 1332(d)’s requirements of  numerosity and $ 5 million in controversy. The district court denied plaintiffs’ motion for certification, finding that class resolution was not superior to other methods of adjudication, citing manageability issues inherent in litigating seven job classifications, three separate employers, and three different collective bargaining agreements.  Not to mention the need to determine individualized damages. Unfortunately for defendants, the district court granted plaintiffs’ motion to remand on the theory that CAFA jurisdiction never existed. Plaintiffs must have been delighted to be back where they started. The ping pong game began in earnest. Plaintiffs filed two new putative class actions in state court and moved to amend the remanded action. Defendants removed the two new cases to federal court and sought appeal of the remand order on the original case. Noting that if class certification was denied in the two new cases on the same grounds as the original case, those cases would bounce back to state court all over again, the Ninth Circuit put a stop to jurisdictional volleys.  Joining the Seventh Circuit in Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805 (7th Cir. 2010) and  Eleventh Circuit in Vega v. T-Mobile USA, Inc., 564 F.3d 1256 (11th Cir. 2009), the Ninth Circuit held that post-removal denial on class certification does not divest federal jurisdiction over matters otherwise properly removed under CAFA.  A putative class action once removed stays removed.  

The concept, which the Shell Oil case proves is not just hypothetical, that a putative class action could be removed, certification defeated, remanded, split in three, separate pieces re-removed and re-remanded, should give future Circuits pause before concluding that federal jurisdiction ends when class certification is denied.