By Gerald L. Maatman, Jr. and Scott Pearson

Although defendants often settle class actions to “buy peace” through class-wide releases, it is well-established that class releases will not be enforced in certain situations, such as when notice to the settlement class is deemed inadequate. In Hecht v. United Collection Bureau, 2012 U.S. App. LEXIS 17374 (2d Cir. Aug. 17, 2012), the Second Circuit recently highlighted that risk, finding that a class settlement did not bar a subsequent claim under the federal Fair Debt Collection Practices Act (“FDCPA”) because notice of the settlement solely through a single advertisement in USA Today was insufficient. Although the settlement class was settled under Fed. R. Civ. P. 23(b)(2), which does not require notice in its text, the Second Circuit determined that certification under Rule 23(b)(2) “does not excuse the due process requirement that unnamed class members in a class action predominantly for money damages receive the best practicable notice.” Id. at * 6. As a result, the Second Circuit reversed the district court's dismissal of Hecht's FDCPA claim, vacated the dismissal of her Connecticut Unfair Trade Practices Act claim, and remanded for further proceedings.

While the general principle reiterated in Hecht is not new, the Second Circuit’s analysis of how much notice was required to satisfy due process in the context of a class action settlement is a primer for employers and their counsel in crafting sound notice programs to achieve finality and peace from further litigation.

Facts At Issue In The Second Circuit’s Ruling

Chana Hecht was a member of a nationwide class that was certified for settlement purposes by the U.S. District Court for the Eastern District of New York in a case against United Collection Bureau Inc. for alleged violations of the FDCPA. The case was Gravina v. United Collection Bureau Inc., No. 09-CV-4816 (E.D.N.Y.). Notice of the class action settlement was provided via a single advertisement in USA Today, which Hecht claimed was insufficient. As a result, she brought suit separately, alleging the same violations of the FDCPA as the settlement class in the Gravina litigation. The district court dismissed the claim, concluding that it was barred by the doctrine of res judicada.

On appeal, Hecht contended that the doctrine would normally bar her claim, but that binding her to the settlement would violate due process because the notice provided in the class action settlement was constitutionally inadequate. The Second Circuit agreed. It concluded that she had a due process right to notice, despite the miniscule monetary recovery available in the settlement of the class action (as roughly $13,000 was to be divided among approximately 2 million class members).

Citing Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985), the Second Circuit reasoned that absent class members have a due process right to notice and an opportunity to opt out of a class action when the class action is predominantly for money damages,  After determining that Hecht had a right to due process, the Second Circuit analyzed to whether the notice satisfied those requirements. The Second Circuit found that it did not, for a single advertisement was not “the best practicable” notice as required under Shutts. Id. at *7.

Implications For Employers

Though not a workplace class action, the Second Circuit’s ruling in Hecht is well worth a read. It is a cautionary tale of why it is counter-intuitive to skimp on notice programs, as the reason to enter into the class-wide settlement is to secure a class-wide bar based on res judicata principles.

A more thorough analysis of Hecht is contained in our One Minute Memo of today, which can be accessed here.

By

We have written a number of blog posts about Judge Quackenbush’s displeasure with certain class counsel arising from a request for an award of attorneys’ fees, costs, and expenses submitted in the U.S. District Court for the Eastern District of Washington in Plumbers Union Local No. 12 Pension Fund v. Ambassadors Group Inc., No. CV-09-214 (E.D. Wash.). During hearings on the request, the Court discovered that class counsel’s declarations had misrepresented the amounts counsel actually paid out for a number of items and included what the Court considered to be inappropriate expense (click here and here to read more). Following formal disciplinary proceedings that the Court initiated against plaintiff’s counsel, the Court issued an Order of Reproval of one attorney and an Admonition to another on July 25, 2012.  Plumbers Union Local No. 12 Pension Fund v. Ambassadors Group Inc., No. CV-09-214, 2012 U.S. Dist. LEXIS 73297 (E.D. Wash. July 25, 2012). 

In the proceedings, the two individual counsels and the firm were separately represented. The Court addressed the culpability of each party separately. The Court focused most attention on the “settlement partner” who had the best knowledge of the relevant facts and who had submitted a declaration under penalty of perjury that contained misleading statements.  Specifically, the settlement partner’s declaration stated that “[m]y firm incurred a total of $223,095.46 in expenses in connection with the prosecution of this action,” and included as a “disbursement” a reference to “Investigators” in the amount of $125,935. The Court noted that this representation in particular “was not true and correct.” Id. at *2. Judge Quackenbush noted an additional disparity in the claimed and actual disbursement for the “Economic Damage Analysts.” Id. 

The Court expressly rejected class counsel’s contentions that these misstatements were a result of “oversight” or “innocent error.” Id. at *3. In a finding of fact that underlies the disciplinary decision, the Court determined that these representations “were at a minimum a reckless disregard for the truth thereof and violated the obligation of candor by counsel to the court.” Id. Moreover, the Court was not persuaded to excuse the settlement partner’s action because she “may have been influenced” by her husband’s terminal illness. Noting that the settlement partner had been the subject of another Court’s finding of a misleading statement, Judge Quackenbush found that this prior issue “should have caused [the settlement partner] to avoid ever again being in the position of having to defend unsubstantiated or misleading expense claims.” Id. at *4. The Court thus issued the Order of Reproval and directed that the order “be public and forwarded to the California State Bar Association,” which had licensed the settlement partner. Id.

Concerning the role of litigation counsel in the matter, the Court pointed out that this attorney had not specifically listed each “Disbursement” in his own initial declaration, and thus the Court “might understand that [he] was then relying on” the settlement partner’s declaration in her role as settlement counsel. Id. at *2. “However, once the Court raised the issue of the accuracy of the alleged ‘Disbursements’ set forth in [settlement counsel’s] Declaration, [litigation counsel] failed to personally investigate those claims and, in fact, filed another Declaration supporting the inaccurate investigator disbursements.” Id. at *5. That failure violated litigation counsel’s obligation to “correct a false statement of material fact” and was the basis of the Court’s decision to admonish litigation counsel. Id. 

The most pertinent takeaway from this installment of the Wine and Roses saga arises from the Court’s discussion if its decision not to discipline the firm itself. In contrast to the “excuses” approach taken by the settlement and litigation partners, the law firm presented a number of actions it had taken in an effort to ensure that firm attorneys were forthcoming with courts on fee and expense requests in the future. First, the firm advised the settlement partner that she was no longer authorized to submit fee or expense applications on behalf of the firm, and that she would retire from the firm on July 31, 2012. Second, the firm scheduled a continuing legal education program for all of its attorneys and staff on billing, expense, and timekeeping procedures.  Noting that these concrete actions “are likely more rigorous than those in most similar firms,” (id. at *6), the Court was “satisfied” that “there is no or little likelihood for similar failures by members of that firm in the future.” Id. 

A settlement approval decision in New Jersey federal court earlier this week stands as a reminder of the realities, and complexities, of settling class action lawsuits. Judge Katharine S. Hayden of the U.S. District Court for the District of New Jersey put the U.S. Justice Department’s class action claim against the State of New Jersey and the New Jersey Civil Service Commission (“NJCSC”) to rest when she deemed their settlement agreement “fair, adequate, reasonable, and consistent with the law.” U.S. v. New Jersey, No. 10-91, at 55 (D.N.J. Jun. 12, 2012). The settlement marks the end of an almost four year investigatory and litigation process. 
 
Background Of The Case 

The case began when the Justice Department filed a complaint against New Jersey and the NJCSC alleging a pattern or practice of discrimination against African-American and Hispanic police officers who were candidates for promotion to sergeant throughout the state. Per the NJCSC's selection procedures, officers are required to pass an exam to be eligible for a promotion. According to the Justice Department, this exam resulted in a “statistical disparate impact on African American and Hispanic candidates” and thus “constitute[d] unlawful discrimination due to race in violation… of Title VII.” Id. at 4.   

Last year, the case went into settlement proceedings. The parties negotiated a consent decree, and the agreement was modified twice before finally reaching Judge Hayden’s courtroom for final approval.  

Basis Of The Court’s Ruling 

The decision sheds light on the compromising effect settlements can have in class action suits.  Most class action settlements have a two pronged approach to relief: systemic relief and individual relief. This approach seeks to give relief to all effected class members in a meaningful and effective way.  

Not everyone is always satisfied, though. In this instance, the Court received a staggering 468 objections in opposition to the consent decree. 

Some objections offered alternative explanations for the different exam passage rates, citing “cultural distinctions or amount of time dedicated to preparing for the examinations.” Id. at 20. Others complained that the back pay relief was inadequate “in terms of…retirement benefits for claimants who took the examination but were never promoted.” Id. at 37. The most controversial part of the settlement, however, concerned “the authorization of priority promotions in 13 jurisdictions.” Id. at 38. Many objectors voiced concerns “that they [would] be put at an unfair disadvantage through no fault of their own” and bypassed by less qualified candidates through the application of retroactive seniority. Id. at 38-39.  

The objections hardly fell on deaf ears. Judge Hayden’s lengthy 55 page opinion carefully considered each of the major objections, though she ultimately found them unpersuasive. In the end, she concluded that the class action settlement should be approved. 

Implications For Employers 

While this case does not change the landscape of class action settlements, its insights on those settlements in the context of Title VII claims are valuable. Recognizing the complexity in “strik[ing] an appropriate balance” between competing interests, Judge Hayden’s opinion reminds litigants of the benefits of settlement over litigation, but also of the unique challenges that face parties in crafting programmatic relief provisions in settling employment discrimination class action litigation. Id. at 41.

By Christopher DeGroff, Laura J. Maechtlen, and Claudia Y. S. Wilson

Three large trade groups representing millions of the country’s businesses and employers entered the appellate fray last Thursday with their filing of an amicus brief before the Sixth Circuit in EEOC v. Peoplemark, Inc. As we previously reported here and here, EEOC v. Peoplemark stems from a Michigan district court’s underlying decision to award approximately $750,000 in attorneys' fees and costs against the EEOC, as a result of the agency’s failed discrimination suit against defendant Peoplemark, Inc. The trade groups’ amicus submission adds to the growing chorus of voices expressing growing intolerance for the EEOC's overly zealous enforcement tactics in large-scale pattern or practice cases.  

EEOC v. Peoplemark involved a civil complaint filed by the EEOC against a temporary staffing company. The EEOC alleged the company maintained a no-hire policy against persons with a criminal record, which resulted in a disparate impact on African-Americans in violation of Title VII. The problem with the EEOC’s theory was its assertion that Peoplemark’s had a blanket no-hire policy was simply not true.  In fact, of the 286 individuals the EEOC purported to represent in this case, only 22% actually had been hired and placed by Peoplemark. Eventually, the parties submitted a joint motion to dismiss, in which they agreed that Peoplemark was the “prevailing party” for purposes of attorney’s fees and costs under Title VII. The district court awarded Peoplemark attorneys' fees and costs in the amount of $751,942.48, one of the largest sanction awards ever against the Commission. The EEOC then appealed the award to the Sixth Circuit.

In their amicus filing with the Sixth Circuit, the employer industry groups -- including the U.S. Chamber of Commerce, National Federation of Independent Business Small Business Legal Center, and Equal Employment Advisory Council -- side with Peoplemark and take direct aim at the EEOC’s enforcement tactics. They note that the EEOC knew it had no statistical data to support a threshold disparate impact discrimination claim, and that given the agency’s experience in litigating enforcement actions, the EEOC “should have known better” than to pursue its claim against Peoplemark. Employer Amicus Brief at *16. The amici asserted that the EEOC's commencement of a public enforcement action on behalf of a class of alleged victims in the face of contrary information “defies comprehension -- and is unreasonable on its face….” Id. at 23. The amici surmise that the EEOC’s true objective in proceeding to court was either to pressure Peoplemark into settling the case, or to use discovery as a pretense for a fishing expedition for as-yet-undiscovered discrimination claims.  No matter the objective, however, the amici argued that the EEOC’s “unreasonably aggressive enforcement tactics” disadvantage employers and employees alike. Id. at 16. Both groups look to the EEOC “to take seriously its goal of preventing and correcting actual workplace discrimination… [] not to aimlessly pursue frivolous litigation for the sake of litigating.” Id. Observing that the EEOC’s dubious tactics have come under increased criticism by a number of federal courts, the trade groups urge the Sixth Circuit to help remedy the results of the EEOC’s overzealous enforcement efforts by affirming the underlying attorneys' fee and cost award. 

Thursday’s amicus filing highlights a notable development in EEOC enforcement litigation: businesses and employers, regardless of industry sector or geographical region, are longer content to act as interested bystanders to the EEOC’s increased enforcement activity. It further underscores a growing intolerance by employers and federal courts alike for the EEOC's "shoot-first, aim later" tactics in large-scale pattern or practice cases.       

A few months ago, we wrote about an interim decision in Plumbers Union Local No. 12 Pension Fund v. Ambassadors Group Inc., No. CV-09-214-JLQ, 2012 U.S. Dist. LEXIS 26232 (E.D. Wash. Feb. 28, 2012), in which Judge Quackenbush of the U.S. District Court, Eastern District of Washington was contemplating disciplinary action against class counsel for an attorneys’ fees, costs, and expenses request that included expenses for wine, first class airline tickets, and expensive hotel bills. You can read that previous blog here. Following class counsel’s response to Judge Quackenbush’s “Interim Memorandum” of February 2012, the Court recently issued an order - Plumbers Union Local No. 12 Pension Fund v. Ambassadors Group Inc., No. CV-09-214-JLQ, 2012 U.S. Dist. LEXIS 73297 (E.D. Wash. May 25, 2012) - indicating that it will sanction class counsel and reduce the lodestar in this matter.

Basis Of The Court's Ruling

Clearly, class counsel’s submissions did nothing to allay Judge Quackenbush’s initial concerns. Reaffirming its “fiduciary role” vis a vis the settlement class, the Court identified five concerns that arose from the close look it took at class counsel’s petition for an award of attorneys’ fees, costs, and expenses. Id. at *3.

First, the Court scrutinized the number of hours class counsel expended for particular tasks. The Court determined that a maximum of 40 hours was justified for preparation of the Amended Complaint. The Court also found that the 135 hours billed by an attorney whose involvement in the case was limited to preparing final settlement papers was excessive, stating that “not more than 95 hours of attorney time should have been involved in the preparation and completion of the settlement documents and pleadings.” Id. at *4. Defense counsel will find these rulings helpful both because they set a benchmark by which time spent in other cases for preparing amended complaints and finalizing settlements may be evaluated, and because this holding supports arguments that it is not reasonable for an attorney unfamiliar with the case to pad the lodestar figure after a settlement in principle is achieved by spending large amounts of time completing the settlement. 

Second, the Court took similar issue with class counsels’ hourly rates, reaffirming the rule that “usually, the reasonable attorney hourly rates in the district of the litigation should be utilized.” Id. at *4. Judge Quackenbush held that “considering the nature and relatively limited extent of this litigation compared to other class actions,” the maximum hourly rates should run $500/hour for partners, $300/hour for associates, and $150/hour for paralegals. Counsel defending class actions in the Eastern District of Washington in particular will find this holding useful for establishing a ceiling for maximum hourly rates in other cases within the district. Defense counsel in all districts can make good use of Judge Quackenbush’s determination that “the work of [a] docket clerk is not appropriately considered in setting the lodestar for attorney compensation,” because such tasks “are part of a law firm’s normal overhead and should not be included in the lodestar calculation.” Id. at *5.

Third, Judge Quackenbush addressed the hundreds of thousands of dollars class counsel sought for investigatory work. The Court rejected class counsel’s argument that trial courts should not look behind the claimed expenses with the strongest language of the Opinion, stating: “I make no apology as the facts in this case establish, to my dismay after 32 years on the federal bench, that the misleading expense and disbursement claims by [class counsel]  in this and other cases require specific scrutiny by the court.” Id. at *7. Noting that subsequent submissions by class counsel revealed enormous discrepancies between the $223,000 originally claimed and the $114,000 “actually paid and disbursed,” the Court ordered class counsel to amend their claim for fees and expenses to reflect the amount actually disbursed to investigators.

Fourth, and most significantly, the Court focused on the expensive dinners and first class airline tickets also included in the fee petition. The Court noted that, following his issuance of the Interim Memorandum, class counsel withdrew the claim for reimbursement of a $400 dinner bill; however, class counsel continued to press for reimbursements of their first class airline tickets. Judge Quackenbush wryly noted that “[f]rom personal experience the Court knows that an attorney or judge can accomplish his or her work requirements while flying in the coach section of an aircraft.” Id. at *8-9. In rejecting the claim for these expenses, the Court held that “it is not appropriate for the persons who suffered the securities losses to pay for first class transportation.” Id. at *9. Judge Quackenbush ordered class counsel to submit an amended expense request that reflected the cost a coach class ticket purchased two weeks in advance. 

Fifth and finally, in light of these concerns, the Court turned to the issue of sanctions. Although class counsel framed the concerns raised by the Court as “mistakes,” particularly with regard to the expense reimbursements, the Court stated that it was “unable to find that these ‘mistakes’ were inadvertent or mere oversights.” Id. at *10. Based in part on the fact that one member of class counsel’s team had made similar misleading statements in at least two other fee petitions, Judge Quackenbush determined that a “pattern” was established, and that he intended to sanction class counsel by admonition or written reproval, a formal disciplinary proceeding under the Rules of the Court. Id. at *11. 

Implications For Employers

Judge Quackenbush's decision is a case study for class action practitioners. It illustrates how settlement approval issues can be endangered by "issues" with the fee petitions of plaintiffs' counsel.

The ruling is also gaining traction and circulation, perhaps as a ready exhibit to those who trumpet the abuses of class action lawyers who allegedly line their pockets at the expense of the class.

In Plumbers Union Local No. 12, Judge Justin Quackenbush of the U.S. District Court for the Eastern District of Washington issued an “Interim Memorandum”  requiring plaintiffs’ counsel in a securities fraud class action to provide written responses to the Court’s serious concerns about the expenses, disbursements, and attorney fees they sought after the action had settled.

The Court scrutinized plaintiffs’ “Motion For Award Of Attorneys’ Fees And Expenses” as a fiduciary representative of the interests of the class, and took issue with a number of requests.

For example, Judge Quackenbush examined at length the inconsistent representations plaintiffs’ counsel made when reporting amounts paid to a retired police officer to conduct an investigation related to the class action. While plaintiffs’ counsel initially reported paying the investigator $125,935.00 at a rate of $445 per hour, they conceded at a hearing before Judge Quackenbush that the investigator did not, in fact, receive such payment. Subsequent declarations filed by plaintiffs’ counsel further conceded the investigator was paid only $31,710.15 in total, at a rate of $112 per hour.

Judge Quackenbush also questioned the appropriateness of a number of other expenses and disbursements claimed by plaintiffs’ counsel, including dinner for four at a Newport Beach, California restaurant “that included two (2) bottles of $72 per bottle wine and a $60 waiter tip included in the $402.00 bill.” In what reads as admonition more than inquiry, Judge Quackenbush posed the following questions: “Should members of the class, who suffered the monetary loss, be required to pay for such an evening? Are such expenses ‘reasonable and necessary?’” 

Judge Quackenbush also highlighted a number of hotel bills, including a one-night Spokane, Washington hotel charge for $285, which he called excessive given that the charge included a $50 late checkout fee and “a one evening room in a good Spokane hotel may cost approximately $100.” Other excessive travel and hotel charges included Newport Beach hotel fees of $359, $371, and $398 per night, a round trip plane ticket between New York and Spokane for $1,676, and a round trip ticket between New York and San Diego for $2,169.

The Court also questioned a claim for $15,025 for “mediation.” As the mediator’s one-day charge was to be divided between plaintiffs and defendants, Judge Quackenbush took issue with the representation that the mediator’s one-day fee was over $30,000.

The Court took similar issue with the fee request of plaintiffs’ counsel, both in terms of the reasonableness of the hours claimed and the reasonableness of the hourly rates asserted. In particular, Judge Quackenbush expressed continued concerns over a claim of $52,257 in fees for preparation of an Amended Complaint, and also over a claim for $96,525 in fees for 135 hours billed by an attorney who was not involved in the matter until after settlement was achieved and worked only on preparation of final settlement papers. The Court likewise questioned the hourly rates asserted by plaintiffs’ counsel for both attorney and paralegal time, and cited to a number of lower rates found reasonable in other federal districts.

In light of its numerous concerns regarding the expenses, disbursements, and fees requested, as well as his recognition that plaintiffs’ counsel had previously made claims for reimbursement of expenses that the U.S. District Court for the Northern District of California called “misleading” - in the case of In re CV Therapeutics, Inc., Securities Litigation, No. C 03-3709, 2007 U.S. Dist. LEXIS 98244, at *3 (N.D. Cal. April 4, 2007) - Judge Quackenbush advised plaintiffs’ counsel the Court would, for the first time in his thirty-two (32) years on the federal bench, consider imposing sanctions, including at minimum a written admonition, and also initiation of disciplinary proceedings.

As for the Seattle law firm that served as local counsel, the Court warned that signing and filing misleading pleadings on behalf of plaintiffs’ counsel could result in possible damage to their reputations or other negative consequences.

Implications For Employers

The ruling in Plumbers Union Local No. 12 Pension Fund is a stunner. It’s worth reading twice - once is not enough.

Judge Quackenbush’s Interim Memorandum underscores the notion that there is no need to blindly accept class counsel’s representations that their fee and expense request is reasonable and that preserving the right to challenge the fee award may not only deter plaintiffs from identifying a client as lenient on fee issues, but also may result in measurable savings for defendants in the context of settlement of class action litigation. 

By Chris Palamountain and Esteban Shardonofsky

Law has its own set of elusive curiosities. For class action litigators, an attorneys’ fees award that comes with a lodestar “enhancement” above 150% is the courtroom equivalent of passing a leprechaun on your morning jog. Young lawyers hear rumors about how once upon a time courts awarded attorneys’ fees above and beyond the lodestar (the reasonable hourly rate multiplied by the number of hours reasonably spent on a case). However, fee multipliers have been virtually extinct in federal courts for over a decade, and proof of a significant positive multiplier has been increasingly hard to substantiate even in state courts. Texas state courts are particularly unlikely jurisdictions for finding a positive multiplier above 1.5. But the wait is over. 

In a recent ruling on February 9, 2012, the Texas Court of Appeals awarded a lodestar enhancement in Stratton v. XTO Energy, Inc., Case No. 20-10-00483-CV (Tex. Ct. App. Feb. 9, 2012). It is believed that the ruling represents the first Texas appellate court to address the state’s lodestar enhancement statute. 

Stratton started as a shareholders’ class action arising in the wake of the $41 billion 2009 merger of ExxonMobil Corp and XTO Energy, Inc. A class of XTO shareholders filed suit, alleging that the company’s directors breached their fiduciary duty in their disclosures and failed to maximize shareholder value. Class actions were filed in a Texas state court, a Delaware chancery court, and a federal district court in Texas. After two months of intensive discovery, the parties reached a settlement in April 2010 that involved increased disclosures but no monetary awards to the class. As part of the settlement, Exxon Mobil agreed not to oppose any application for an award of attorneys’ fees and costs up to $8.8 million.

During the settlement approval process, Plaintiffs moved for fees and expenses totaling $8.8 million. The lodestar figure of the 21 firms who represented the class amounted to $3.97 million, and costs were $188,355.66. In addition, Plaintiffs sought a multiplier of 2.17, for a total fee and costs award of $8.8 million. To support their application, Plaintiffs submitted affidavits from all 21 firms attesting to the work done by each firm and the hours and rates of their attorneys. Per the settlement agreement, Defendants did not object.

The trial court awarded the full lodestar figure and costs but declined to apply any multiplier. The trial court issued a letter to clarify the reasons for its ruling. The letter noted several problems with the evidence for the award, including a lack of substantiation that the hours worked and rates billed were reasonable, as well as concern that some of the factors to be considered in granting a multiplier “would not be appropriate across the board” because of the firms’ differences in size, location, specialization, and degree of involvement with the case. In addition, the trial court assumed that the factors governing lodestar awards had already been applied to justify the unusually high rates requested by the firms. 

Plaintiffs filed a motion to modify the judgment and to supplement the record, including new affidavits from the law firms attesting to the reasonableness of their respective firms’ rates. Plaintiffs also submitted an affidavit from Professor Geoffrey P. Miller, as an expert opinion on attorneys’ fees in class actions; and an affidavit from Professor Arthur Miller, a member of the Advisory Committee on Civil Rules of the Judicial Conference. At a hearing on Plaintiffs’ motion, Professor Miller and Craig Enoch (a former Justice of the Texas Supreme Court) testified and submitted an exhibit comparing the rates of Plaintiffs’ counsel with other comparable firms in and beyond Texas. The trial court took no action on Plaintiffs’ motion, so the motion was denied by operation of law. Plaintiffs subsequently appealed.

Applying an abuse of discretion standard to its review of the judgment, the Texas Court of Appeals more than doubled the attorneys’ fees award, holding that the trial court misconstrued the multiplier factors outlined in Tex. R. Civ. P. 42(i)(1) and failed to account for unrebutted evidence supporting a fee enhancement. Those factors include:  (i) the novelty and difficulty of the questions involved; (ii) the likelihood that acceptance of the case precluded other employment by the lawyer; (iii) the customary fee charged in the locality for similar legal services; (iv) the amount involved and results obtained; (v) time limitations; (vi) the nature and length of the professional relationship; () the experience of reputation of counsel; and (viii) the uncertainty of collection before services are rendered. 

Given the lack of Texas authority on the subject, the Court of Appeals’ decision draws heavily from Johnson v. Georgia Highway Express, Inc., 488 F.3d 714, 717-19 (5th Cir. 1974). The Georgia Highway Express decision articulated a very similar set of standards for applying a multiplier in federal court as those laid out in the Texas statute. Interestingly, the Texas Court of Appeals did not mention, much less address, the dramatic evolution in the application of multipliers that has occurred since that time. In the end, the Texas Court of Appeals in large part appears to have been persuaded by the expert testimony, which, under the terms of the settlement, Defendants were not permitted to rebut. Similarly, as the final fee award is within the amount negotiated as part of the settlement, a further appeal is unlikely. 

Whether or not this decision breathes new life into plaintiffs’ attempts to obtain multipliers as part of their fee applications in workplace class actions remains to be seen. However, given the procedural posture, the settlement that prevented Defendants from challenging the fee award, and the unusual set of experts involved in this litigation, it could well be decades before a multiplier of this type is seen again. 

By Rebecca Bjork and Chris Palamountain

The Plaintiffs' class action bar has made much of the retroactivity provisions of the Lilly Ledbetter Fair Pay Act of 2009, which provide that an unlawful employment practice occurs not only when a discriminatory decision is made, but also “each time wages, benefits, or other compensation is paid….”  Pub. L. No. 111-2, § 3, 123 Stat. 5, 5-6. However, a recent Second Circuit decision - Schwartz v. Merrill Lynch & Co, Inc., 2011 WL 5966616 (2d Cir. Nov. 30, 2011) - demonstrates that these provisions are not without limits, particularly when a claimant has previously executed a release of claims that encompasses prior decisions.

Schwartz participated in a 1997 class action known as Cremin, et al. v. Merrill Lynch, which alleged that Merrill Lynch discriminated against female employees by disproportionally steering lucrative client accounts to male Financial Advisors. As part of a broader settlement, class members in Cremin were given the opportunity to pursue their claims in arbitration. Id. at *2. Schwartz arbitrated her Cremin claims. As part of her individual settlement, Schwartz released Merrill Lynch with respect to any and all claims that she had as of April 2, 2001. Claims arising after April 2, 2001 were not released. Id. 

In 2003, Schwartz filed a new action asserting that Merrill Lynch had continued to discriminate against her through utilization of Account Distribution Policy credits. More specifically, Schwartz argued that years of alleged gender discrimination had allowed men to generate greater credits than women, which in turn perpetuated the ability of men to receive larger client accounts. Merrill Lynch promptly moved to confine Schwartz’s arbitration claims to events after the date Schwartz signed her release. Soon thereafter, the arbitration panel chair ruled that Schwartz’s claim "starts with April ’01." Id. at *3. During the pendency of Schwartz’s arbitration claims, Congress enacted the Fair Pay Act.  The Act is retroactive with respect to Title VII claims pending on May 28, 2007.  Pub. L. No. 111-2, § 6, 123 Stat. 5, 7. 

In the hearing that took place after the Fair Pay Act became law, the arbitration panel permitted presentation of some evidence concerning pre-April 2001 activity but excluded other evidence because it was too remote from the start date for the claims. Ultimately, the majority of the panel concluded that Schwartz failed to establish a violation of law after April 2, 2001. Id. at *4. Schwartz filed a petition in U.S. District Court seeking to vacate the panel’s award, arguing that since her claim was pending on May 28, 2007, the panel’s decision to exclude evidence of pre-Cremin conduct was “clearly contrary to the new [Fair Pay] Act.” Id. at *5. The District Court denied the petition, finding that the arbitration panel had not demonstrated manifest disregard of the law. Id. Schwartz appealed to the Second Circuit, arguing that the Fair Pay Act gave her the right to present and recover for her claims that she lost substantial compensation during the actionable liability period based on or related to discriminatory decisions that predated her 2001 settlement and release.

The Second Circuit found “no basis for vacating the Panel Award denying Schwartz’s claims” and that “Schwartz’s contentions are without merit.” Id. at *6. Relying heavily on a contractual analysis, the Second Circuit found that the “temporal limitation imposed by the arbitrators was based on their interpretation of the Release, in which Schwartz expressly relinquished any claims ‘related to’ her employment with Merrill Lynch prior to the April 2, 2001 date on which she signed the Release.” Id. at *8. The Second Circuit also rejected Schwartz’s argument that the release preserved rights to relief for discrimination occurring after April 2001 “even if that discrimination was similar or related to” past discrimination, stating simply stating that “the Release did not clearly so state.” Id. at *9. Noting that that nothing in the Fair Pay Act “even remotely suggests that Congress intended to alter” the enforceability of releases of Title VII claims or “revive claims that had previously been released,” the Second Circuit affirmed the District Court’s denial of Schwartz’s petition to vacate the arbitration award. Id.

Employers contemplating settlement of gender discrimination claims - especially in the context of a class action settlement - will want to consider the Second Circuit’s rationale in crafting any release of claims. Even if avoiding liability for a recent employment decision is not possible, broad releases like the one Schwartz signed may limit the scope and impact of future lawsuits.

Since the U.S. Supreme Court's ruling last year in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (2010), the use of arbitration agreements to resolve employment disputes has been hotly debated, both in federal courts and elsewhere. A federal district court in Virginia - in Bennett et al. v. Dillard’s, Inc., Civ. A. No. 3:10-CV-39-JAG (E.D. Va. Mar. 10, 2011) [link to ruling] (“Bennett”) - recently ruled that the Older Workers Benefit Protection Act, 29 U.S.C. § 626(f)(1) (the “OWBPA”), does not preclude an employer from compelling claims of age discrimination into an arbitral forum. In so holding, the Court in Bennett also rejected the notion that a pre-employment arbitration agreement prepared by an employer constitutes a contract of adhesion.

In Bennett, a group of four former employees of Dillard’s filed a multi-plaintiff lawsuit claiming they were unlawfully discharged in violation of the Age Discrimination in Employment Act of 1967, 29 U.S.C. § 621 et seq. (the “ADEA”). Id. at 1. Each of the Plaintiffs had executed pre-dispute arbitration agreements that specifically encompassed claims of age discrimination. Id. at 2. Dillard’s moved to dismiss Plaintiffs’ complaint or, in the alternative, to compel arbitration. In response, Plaintiffs claimed that the OWBPA precluded pre-dispute arbitration agreements covering ADEA claims. 

The OWBPA provides that employees “may not waive any right or claim under [the ADEA] unless the waiver is knowing and voluntary.”  29 U.S.C. § 626(f)(1) (emphasis added). The OWBPA then imposes specific requirements that must be met before a waiver is deemed “knowing and voluntary,” including that employees must be given at least 21 days to consider the agreement and 7 days to revoke it.  29 U.S.C. § 626(f)(1) (A) through (H). The arbitration agreements signed by the Plaintiffs in Bennett did not meet these requirements.  Nonetheless, the Court held that the arbitration agreements did not violate the OWBPA. Relying heavily on the Supreme Court’s decision in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), Bennett held the OWBPA’s waiver requirements apply only to substantive rights. Id. at 4.

While this central holding is important, Bennett is instructive in another significant aspect. Since Stolt-Nielsen, plaintiffs in employment cases have attempted to distinguish the Supreme Court’s holding by contending that pre-employment agreements to arbitrate often are contracts of adhesion that should be construed against the employer. Accordingly, these plaintiffs argue that reading an assent to arbitrate class claims into pre-employment arbitration agreements is consistent with Stolt-Nielsen, even if the arbitration agreement is silent on the issue of class arbitration. Bennett deals a blow to this argument.

In Bennett, Plaintiffs argued the Dillard’s agreement was a contract of adhesion. Id. at 7.  The Court noted that a contract of adhesion involves an individual with no choice in the matter. Id. The Court reasoned that “Dillard’s employees had the option to work elsewhere, so the arbitration agreement is not a contract of adhesion or otherwise unconscionable.” Id. at 8.

Nonetheless, Bennett is not uniformly favorable to employers. In Bennett, Plaintiffs argued that arbitration did not provide an effective means of resolving their claims because they would need separate, individual arbitrations. Id. at 8-9. The Court, in dicta, noted that the Dillard’s agreement did not preclude “a single unified arbitration,” and opined that the case “appears to be a good candidate for a single arbitration.” Id.  Ultimately, the Court held that the time and effort needed for arbitration was not necessarily greater than the time for judicial proceeding. Id. at 9. More importantly, the Court never held or even suggested that a single arbitration was required in the face of silence.

For employers managing their risks of litigation, Bennett is significant in two ways. First, it reaffirms a line of cases finding that the OWBPA does not preclude arbitration of age discrimination claims under the ADEA, even if the underlying agreements do not comply with the OWBPA. Second, and more importantly, Bennett rejects the often advanced plaintiffs' theory that pre-employment arbitration agreements are contracts of adhesion that must be construed against an employer. The holding in Bennett should be helpful to employers seeking to stave off class arbitrations where the agreements are silent on the issue.

Under the Fair Credit Reporting Act ("FCRA"), an employer has a number of detailed requirements with which it must comply both before it can procure a background report (consumer report) about an applicant or employee, and if it intends to take action in whole or in part based on information in a consumer report. See 15 U.S.C. Sec. 1681 et seq. Specifically, an employer must: (i) have a permissible purpose for procuring a report in the first place; (ii) certify to the background screening company that it will comply with applicable law and will not use any information in violation of Equal Employment Opportunity laws or regulations; (iii) provide a written disclosure to the applicant or employee indicating that specific background checks will be conducted by a third party and obtain authorization from that applicant or employee to conduct such checks; and (iv) follow the detailed two-step adverse action requirements (including providing a copy of the report, a Summary of Rights, and a pre-adverse action notification letting a person know he or she could dispute inaccuracies in the report).

As evidenced by the recent approval of a $5.9 million class settlement in Hunter, et al v. First Transit,, Inc., Case Nos. 09-CV-6178 & 10-CV-7002 (N.D. Ill. Mar. 23, 2011), class actions involving violations of the FCRA carry lofty penalties. Plaintiffs in this litigation alleged that First Transit and First Student, respectively, failed to provide the requisite disclosures to applicants before running a background check on them and also failed to follow the required two-step adverse action process when they denied employment based on information in the criminal background reports.

Under the FCRA, an employer can be liable for willful non-compliance, 15 U.S. C. §1681n, or negligent non-compliance, 15 U.S.C. § 1681o. Claims of willful non-compliance carry possible statutory damages of $100 to $1000 per violation, attorneys’ fees, and unlimited punitive damages. Negligent non-compliance claims do not provide for statutory damages, but instead allow for actual damages, attorneys’ fees, and unlimited punitive damages. Accordingly, most FCRA class actions against employers assert statutory damages claims to avoid defense arguments that the class claims fail under Rule 23 on typicality grounds. 

The Court in Hunter, et al v. First Transit,, Inc., Case Nos. 09-CV-6178 & 10-CV-7002 (N.D. Ill. Mar. 23, 2011), granted preliminary approval of the settlement for more than 143,000 class members. The Court has scheduled a final fairness hearing for August 1, 2011.

It behooves employers to view these cases as an impetus to evaluate their current policies and procedures relating to the use of background checks in employment and seek legal guidance to ensure compliance with the FCRA and similar state laws.

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.

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.

Second, 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.

Fourth, 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.

Sixth, 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. 

Today Judge Colleen McMahon of the U.S. District Court for the Southern District of New York gave final approval to a $175 million settlement of a gender discrimination class action in Velez v. Novartis Pharmaceuticals Corp., Case No. 04-9194 (S.D.N.Y.). The settlement benefits a class of more than 6,000 female current and former sales representatives who alleged systemic discrimination in pay, promotions, and other working conditions at Norvartis. To effectuate the settlement, the Court certified a settlement class of 6,026 female sales employees who worked at Novartis at any point from July 15, 2002, through July 14, 2010. View Settlement Approval Order.

Following a fairness hearing on November 18, 2010, at which no objections were raised to the proposed settlement,  Judge McMahon granted final approval to a consent decree consisting of $152.5 million in back wages, benefits, and adjusted wages, incentive payments to the named plaintiffs who helped litigate the case, and attorneys' fees of $38.1 million and litigation costs of $2 million, plus $22.5 million in non-monetary relief representing Novartis' commitments to enhance its employment policies to eliminate sex discrimination.  View Final Order.  As such, this is the largest Title VII employment discrimination settlement of 2010, and one of the largest ever in a workplace discrimination class action.

Novartis and the plaintiffs' class settled the case following a jury verdict against the company under Title VII of the 1964 Civil Rights Act and jury awards of $3.4 million in compensatory damages to plaintiffs who testified at trial and $250 million in punitive damages.

The $38.125 million award of attorneys' fees to plaintiffs' counsel, or roughly 22 percent of the settlement total, is sure to grab the attention of class action employment lawyers in the plaintiffs' bar.  This is by far the largest fee award in 2010 in an employment-related class action.  In her November 30 decision approving attorneys’ fees, Judge McMahon found the fee award reasonable due to the risk undertaken by plaintiffs’ counsel, the reputation and skill of both parties’ counsel, the time and labor expended, the complexity of the litigation, and the benefits bestowed upon the class.  Although the Court applied the “percentage of the fund” approach instead of a “lodestar” method in calculating the award in this common fund case, it found that under either approach the attorneys’ fees were reasonable.  In addition, the Court also granted plaintiffs’ request for reimbursement of over $2 million in litigation expenses.

Notably, the agreement also added novel and burdensome requirements that Novartis hire external specialists and consultants to ensure compliance with the settlement agreement.  In particular, the agreement requires that Novartis:

• retain an external specialist to “design and carry out an annual adverse impact analysis of ratings”;
• work with an external Compensation and Benefits specialist to “design a base salary pay-in-range analysis and subsequent adverse impact analysis of annual rates of pay”;
• retain an “external specialist to design and carry out an adverse impact analysis” for employees qualified and interested in promotions; and
• work with two outside consultants to “improve the overall culture of the company.” 

These unique non-monetary obligations are likely to show up on settlement checklists of the plaintiffs' bar in negotiating future settlements of employment discrimination class actions.  Accordingly, companies with operations located in the Second Circuit should take additional precaution to update and evaluate their workplace policies.

On multiple levels, the results in Velez v. Novartis Pharmaceuticals Corp. raises the stakes for defendants in all class actions. Higher settlement demands and aggressive lawyering from the plaintiffs' side are sure to follow in its wake.

On November 19, 2010, the U.S. District Court for the Southern District of New York approved the settlement of claims of over 10,000 workers against New York City and its contractors over the workers' exposure to toxic debris during the cleanup of the World Trade Center disaster site following the September 11 terrorist attacks. View Order. The settlement became effective since the opt-in plaintiffs accepting the offers of settlement exceeded the 95 percent threshold set forth in the Settlement Process Agreement with New York City and its contractors. As of November 18, approximately 10,043 of 10,563 plaintiffs had signed on to the settlement agreement in the litigation entitled In Re World Trade Center Disaster Site Litigation, Case No. 21-MC-100 (S.D.N.Y.).

The settlement created a compensation fund to resolve personal injury and disease claims by more than 10,000 police, firefighters, and other rescue, recovery, and cleanup workers at the WTC site. The World Trade Center Captive Insurance Co., created in 2004 under a $1 billion Federal Emergency Management Agency grant, will pay into the fund. The settlement covers nearly 140 defendants, led by New York City and its private debris removal contractors and subcontractors involved at the site of the terrorist attacks and buildings collapses. Claim valuations will be overseen by a neutral third party, known as an allocation neutral, assisted by a panel of independent physicians. This neutral third party filed a report with the Court on November 19 regarding the opt-in status of the plaintiffs. It is expected that the settlement agreement is worth between $625 million and $712.5 million, depending on the overall payments to the opt-in plaintiffs.

Once finalized and implemented, the overall settlement will be one of the largest paid in a workplace class action ever.

We see multiple implications from the verdict and settlement. Plaintiffs' lawyers are sure to trumpet the verdict in settlement negotiations in seeking to drive higher settlement demands. The obvious theme is "Do you want to be the next Novartis?" Employees thinking of suing their companies will read about the verdict and experience a re-calibration of their litigation expectations - as in "I want that kind of money too!"