By Gerald L. Maatman, Jr. and John S. Marrese

Seyfarth Synopsis:  In In Re Subway Footlong Sandwich Mktg. & Sales Practices Litig., No. 16-1652 (7th Cir. Aug. 25, 2017), the U.S. Court of Appeals for the Seventh Circuit overturned a district court’s approval of a class action settlement involving Subway sandwich purchasers who sued for alleged consumer fraud.  The Seventh Circuit called the settlement “worthless” in terms of alleged relief to the class. The decision illustrates that companies defending class action litigation cannot exit such lawsuits by simply “buying peace” by paying-off plaintiffs’ lawyers without providing any value to the class. In this respect, it is one of those unique rulings that is well worth a read by corporate counsel and business executive alike.

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In In Re Subway Footlong Sandwich Mktg. & Sales Practices Litig., No. 16-1652, 2017 U.S. App. LEXIS 16260 (7th Cir. Aug. 25, 2017), the U.S. Court of Appeals for the Seventh Circuit addressed the propriety of an injunctive relief settlement for a class of Subway “Footlong” sandwich purchasers.

A number of state-law consumer protection class actions were filed against Subway based on Subway’s alleged failure to ensure that its Footlong sandwiches were actually 12 inches long.  Id. at *3-5.  Limited discovery showed that the claims had little merit. Subway had always taken steps to ensure that its sandwiches were proper length, but bread length nonetheless varies due to natural and unpreventable variation in the bread-baking process.  Id. at *5.

Rather than pursue resolution on the merits, the parties reached a class-wide settlement for injunctive relief whereby Subway agreed to implement redundant and futile measures in an attempt to ensure Footlongs lived up to their name.  Id. at *7.  Plaintiffs’ attorneys received $520,000 in return for attorneys’ fees.  Id. at *8.  The district court approved of the settlement over objections by certain class members.  Id.

On appeal, the Seventh Circuit reversed, finding that the settlement was “worthless” to the class.  Id. at *14.

Case Background

In 2013, after an online photo went viral showing one customer’s Footlong Subway sandwich was in fact only 11 inches, a slew of plaintiffs’ attorneys filed putative class actions against Subway for damages and injunctive relief.  Id. at *3-4.   The class actions were consolidated in a multidistrict litigation in the U.S. District Court for the Eastern District of Wisconsin.  Id. at *4-5.

Limited discovery revealed that the claims had little merit as: (i) Subway had taken steps to ensure that its Footlongs were in fact 12 inches long; (ii) the minor variability in bread length revealed was due to natural and unpreventable variability in the baking process; and (iii) irrespective of bread length, customers received the same amount of meat, cheese, and other toppings on a sandwich.  Id. Such facts eliminated any hope of certification of a damages class under Rule 23(b)(3), so class counsel focused on certification of a Rule 23(b)(2) injunctive relief class instead.  Id. at *5-6.

The parties subsequently reached a settlement for injunctive relief whereby Subway agreed to implement measures aimed at ensuring Subway Footlongs were in fact 12 inches long, including: (i) requiring franchisees to use a measuring tool for sandwiches; (ii) requiring corporate quality-control inspectors to measure baked bread and check oven operation during regularly scheduled visits; and (iii) posting a notice on its website and in restaurants notifying customers of the variability in baked bread.  Id. at *7.

In return, the plaintiffs agreed to cap their requests for attorneys’ fees at $525,000 and incentive awards at $1,000.  Id. The district court preliminarily approved the settlement, and class counsel filed a motion seeking $520,000 in fees for class counsel and $500 incentive awards for each named plaintiff.  Id. at *8.

A professional objector who was also a member of the class objected to the settlement.  However, the district court overruled the objection, approved the settlement, and certified a class of persons nationwide who had purchased six-inch and Footlong Subway sandwiches between 2003 and 2015.  Id.

The objector appealed.

The Decision

On appeal, the U.S. Court of Appeals for the Seventh Circuit reversed the district court’s approval of the class action settlement.  Id. at *14.

The Seventh Circuit found that the settlement was “worthless” and that “[n]o class action settlement that yields zero benefits for the class should be approved[.]”  Id. at *11.  The Seventh Circuit explained that irrespective of the measures Subway promised to take under the settlement, “there’s still the same small chance that Subway will sell a class member a sandwich that is slightly shorter than advertised.”  Id. at *13 (emphasis in original).

Moreover, the Seventh Circuit found that class members’ right under the settlement to hold Subway in contempt for violating the injunction did not add any value.  Id. at *14.  “Contempt as a remedy to enforce a worthless settlement is itself worthless.  Zero plus zero equals zero.”  Id.

Finally, though not part of its holding, the Seventh Circuit expressed its disdain for the Footlong lawsuits by proclaiming that, because the consolidated class actions sought worthless relief, they “should have been dismissed out of hand.” Id. at *14 (internal quotations and citation omitted).

Implication For Employers

As shown by the Seventh Circuit’s decision, paying-off class action plaintiffs’ counsel can be a poor strategy for efficient resolution of class litigation.  If an employer wishes to realize the cost-savings of early settlement, it must ensure that settlement provides actual value to the class and fees to class counsel commensurate with that value.  Otherwise, expected cost-savings are squandered on opposing objectors (or the trial judge), with the possibility that the trial or an appellate court rejects the settlement and returns the litigation to where settlement talks began.

As an alternative approach, employers should consider efficient and realistic paths to summary judgment.  That approach can make good sense in the face of attorney-driven class litigation with no emotional appeal like the Subway case.  The Seventh Circuit’s emphatic command that meritless class actions should be “dismissed out of hand” should give employers and counsel more confidence in that regard.

washington-monument-754745_960_720Seyfarth Synopsis: Governmental enforcement litigation was a mixed bag in 2016. The U.S. Department of Labor (“DOL”) and the Equal Employment Opportunity Commission (“EEOC”) continued their aggressive enforcement programs, but their effectiveness was down “by the numbers” as compared to previous years. What does this mean for 2017?  In the 6th and final installment in our series of blog postings on workplace class action trends, we examine what employers are likely to see in 2017 on the government enforcement litigation front.

Introduction

Government enforcement lawsuits brought by the DOL and EEOC continued the aggressive litigation programs of both agencies, but by sheer numbers of cases, their enforcement activities were arguably limited in their effectiveness, at least when measured by lawsuit filings and recoveries compared to previous years. Settlement numbers for government enforcement litigation in 2016 decreased substantially as compared to 2015, as did the litigation dockets of the DOL and the EEOC. This trends is aptly illustrated by a comparison of settlement recoveries over the past 7 years. Settlement recoveries in 2016 were the second lowest of any year during that period.

Top 10 Government Enforcement

This trend is critical to employers, as both agencies have a focus on “big impact” lawsuits against companies and “lead by example” in terms of areas that the private plaintiffs’ bar aims to pursue. The content and scope of enforcement litigation undertaken by the DOL and the EEOC in the Trump Administration remains to be seen; most believe there will be wholesale changes, which may well prompt the private plaintiffs’ class action bar to “fill the void” and expand the volume of litigation pursued against employers over the coming year.

Governmental Enforcement Litigation Trends In 2016

On the governmental enforcement front, both the EEOC and the DOL intensified the focus of their administrative enforcement activities and litigation filings in 2016.  At the same time, the number of lawsuits filed and the resulting recoveries by settlement – measured by aggregate litigation filings and the top 10 settlements in government enforcement litigation – were less than half of what the EEOC and DOL achieved in 2015.

The EEOC’s lawsuit count dropped precipitously. By continuing to follow through on the systemic enforcement and litigation strategy plan it announced in April of 2006 (that centers on the government bringing more systemic discrimination cases affecting large numbers of workers), the EEOC filed less cases overall but more systemic lawsuits. This manifested the notion that the Commission’s limited budget and bandwidth are best deployed to matters where a systemic focus is most needed and the largest numbers of alleged victims are at issue.  As 2016 demonstrated, the EEOC’s prosecution of pattern or practice lawsuits is now an agency-wide priority backed up by the numbers.  Many of the high-level investigations started in the last three years mushroomed into the institution of EEOC pattern or practice lawsuits in 2016. These numbers are shown by the following chart:

EEOC Systemic Cases: Filed, Resolved, And On Active Docket
FY 2013 – 2016

Cases Filed

The Commission’s 2016 Annual Report also announced that it expects to continue the dramatic shift in the composition of its litigation docket from small individual cases to systemic pattern or practice lawsuits on behalf of larger groups of workers.  The EEOC’s FY 2016 Annual Report detailed the EEOC’s activities from October 1, 2015 to September 30, 2016.  The EEOC’s Report indicated that:

  • The Commission completed work on 273 systemic investigations in FY 2016, which resulted in 21 settlements or conciliation agreements that yielded a total recovery of $20.5 million for systemic claims; six of the settlements involved 50 alleged victims or more, and 13 settlements included 20 or more alleged victims. The FY 2016 recoveries represent a decrease of systemic recoveries in FY 2015 when the Commission netted $33 million based on resolution of systemic investigations.
  • The EEOC recovered $347.9 million for alleged victims of employment discrimination in FY 2016 through mediation, conciliation, and settlements. This represented a decrease of $10.4 million as compared to FY 2015, when the Commission garnered $356.6 million for its enforcement efforts.
  • For its lawsuits, the EEOC secured $58.3 million in recoveries in FY 2016.  This figure was down $7 million as compared to the FY 2015 recoveries of $65.3 million. However, the EEOC resolved fewer lawsuits than it did last year, and recovered less money from those cases.  Specifically, the EEOC resolved 139 lawsuits during FY 2016 for a total recovery of $52.2 million; by comparison, the EEOC resolved 155 lawsuits in FY 2015 for a total recovery of $65.3 million.
  • The EEOC filed only 86 lawsuits in 2016 (down significantly from the 139 lawsuits it filed in 2015), of which 31 were “multiple victim” lawsuits, with 18 cases involved claims of systemic discrimination on behalf of 20 or more workers, and 13 cases involved multiple alleged discrimination victims of up to 20 individuals.  The EEOC had 165 cases on its active lawsuit docket by year end (down from FY 2015, when it had 218 cases on its docket, of which 48% involved multiple aggrieved parties and 28.5% involved challenges to alleged systemic discrimination).  Overall, this represented increases in these categories in terms of the make-up of the Commission’s litigation being tilted more heavily toward systemic cases.
  • The EEOC also received 91,503 administrative charges of discrimination, which was slightly up from the FY 2015 total of 89,385 charges and the FY 2014 total of 88,778 charges. Thus, charge activity was one of the heaviest in the 52 year history of the Commission.
  • The EEOC also encountered significant criticism in the manner in which it enforced anti-discrimination laws.  This criticism took various forms in terms of judicial sanctions, suits against the Commission by private litigants and States, and questioning by Congress over the EEOC’s alleged lack of transparency.

While the inevitable by-product of these governmental enforcement efforts is that employers are likely to face bigger lawsuits on behalf of larger groups of workers in 2017, the EEOC’s systemic litigation program is not without its detractors.  Several federal judges entered significant sanctions against the EEOC – some in excess of seven figures – for its pursuit of pattern or practice cases that were deemed to be without a good faith basis in fact or law. The U.S. Supreme Court in EEOC v. CRST Van Expedited, Inc., 136 S. Ct. 1642 (2016), examined the propriety of the $4.7 million fee sanction, the largest fee sanction ever leveled against the Commission; while the EEOC had been successful in its initial appeal in reversing the sanction before the Eighth Circuit, the Supreme Court unanimously rejected the EEOC’s position, remanded the fee sanction issue for review, and gave new life to the employer’s efforts to recoup millions of dollars against the Commission.

Fiscal year 2016 also marked another year in the EEOC’s 2012-2016 Strategic Enforcement Plan (“SEP”).  The SEP was created in 2012 as a blueprint to guide the EEOC’s enforcement activity.  Its most controversial and perhaps most far-reaching effect on the agency’s activity is the priority it gives to systemic cases: those pattern or practice, policy, or class-like cases where the alleged discrimination has a broad impact on an industry, profession, company, or geographic area.  Systemic cases have been the main driver of EEOC litigation over the past few years, and likely will be well into the future.  The EEOC is now fighting challenges to its power to bring those cases on a number of fronts.  Among other things, it is aggressively challenging any court’s ability to review how it conducts certain statutorily-mandated procedures before bringing suit, including how it investigates its cases and tries to conciliate those cases with employers.  If successful in those efforts, the EEOC will have greatly eased its path to pursuing systemic cases.

The EEOC is not only expanding its reach in procedural terms, but also it is attempting to broaden the scope of its authority through an expansion of the scope of anti-discrimination laws themselves.  In a number of recent cases, the EEOC has advanced novel legal theories that would, among other things, expand anti-discrimination protections to cover transgender employees and require employers to reasonably accommodate pregnant employees, even those who are experiencing normal pregnancies.  The EEOC continued to push the edge of the legal envelope in 2016, viewing itself as an agency that not only enforces the law, but also one that expands the scope of those laws as it deems appropriate.

For this and other reasons, the agency has come under increasing scrutiny and criticism by Republican members of Congress, business groups, and critics of an allegedly activist agency wasting the taxpayers’ dollars.  Such criticism is unlikely to stem the tide of systemic cases or deter the EEOC from continuing to try to expand its enforcement powers.  Subject to policy-directed changes mandated by the Trump Administration, employers can expect the EEOC will use the next year to continue to push for expansion of its procedural and substantive limits.

The DOL also undertook aggressive enforcement activities in 2016.

The Wage & Hour Division (“WHD”) kept up its aggressive enforcement actions in 2016, particularly in the hotel, restaurant, and retail industries.  Much of WHD’s enforcement and other activities took place under the umbrella of “fissured industries” initiatives, which focus on industries with high usage of franchising, sub-contracting, and independent contractors.  At the conclusion of those enforcement actions, WHD continued to increase its use of civil money penalties, liquidated damages, and enhanced compliance agreements.

Legislatures and government agencies in various states and municipalities also increased their activities on the wage & hour front.  Whether increasing the minimum or living wage, enacting scheduling laws and ordinances, implementing wage theft prohibitions, or increasing the minimum salary level required for exemption, many have already revised or are actively planning to revise laws and rules governing how businesses pay employees in 2017.

With the approaching ten-year anniversary of the last time Congress enacted a minimum wage increase (2007), advocates of a minimum wage increase are likely to turn up the volume on their requests for an increase to the federal minimum wage in 2017.  This may well depend on the politics of the debate, for the incoming Republican Administration appears opposed to such an increase.

Finally, if history is a guide, the incoming Administration is likely to return to the decades-old practice of issuing opinion letters in response to specific requests, which had been abandoned by the Obama Administration’s decision-makers at the DOL.

Over the past several years, the DOL’s Wage & Hour Division (“WHD”) fundamentally changed the way in which it pursues its investigations.  Suffice to say, the investigations are more searching and extensive, and often result in higher monetary penalties for employers. According to the DOL, since early 2009, the WHD has closed 200,000 cases nationwide, resulting in more than $1.8 billion in back wages for over 2 million workers.  In FY 2016, the WHD collected more than $266.5 million in back pay wages, an increase of $20.5 million over the past year. Hence, in 2016, employers finally saw the impact of these changes on the WHD’s enforcement priorities, and 2017 is apt to bring much of the same absent a stark change in priorities under the Trump Administration.

The DOL also focused its activities in 2016 on wage & hour enforcement on what it terms “24/7.” The WHD’s Administrator, Dr. David Weil, was an architect of the WHD’s fissured industry initiative.  This initiative focuses on several priority industries, including food services (both limited service/full service establishments), hotel/motel, residential construction, janitorial services, moving companies/logistics providers, agricultural products, landscaping/horticultural services, healthcare services, home healthcare services, grocery stores, and retail trade.  In FY 2016, the WHD reported recoveries of $143,274,845 for nearly 19,000 workers within these fissured industries.

Not to be outdone, the National Labor Relations Board (“NLRB”) undertook an ambitious agenda in 2016 too.  It reconsidered well-settled NLRB principles on joint employer rules and representative elections, entertained the possibility of extending the protections of the National Labor Relations Act (“NLRA”) to college athletes, and litigated novel claims seeking to hold franchisors liable for the personnel decisions of franchisees. More than any other area impacting workplace litigation, the NLRB also remained steadfast in its view that workplace arbitration agreements limiting class or collective claims are void under § 7 of the NLRA. It pursued a myriad of unfair labor practice charges against employers for alleged violation of the NLRA for use of arbitration agreements with class action and collective action waivers.

Implications For Employers In 2017?

So what are employers likely to see in 2017 on the government enforcement litigation front? In the early days of the Trump Administration, clear direction on litigation policy remain unclear. Most pundits believe that employers can expect less litigation and less regulation than during the Obama Administration. Furthermore, the phenomenon of “regulation by enforcement litigation” is likely no longer the by-product of the DOL and the EEOC’s enforcement litigation programs. Most likely, control of agency budgets may well provide the lever that the Trump White House may use to force its policy choices upon the government enforcement litigation programs of the DOL and the EEOC.

settlement amounts by class action typeAs profiled in our recent publication of the 13th  Annual Workplace Class Action Report, 2016 has been an interesting year for employment-related workplace class action settlements. After reaching all-time highs in 2014 and 2015, the monetary value of aggregate top-ten employment class action settlements declined significantly.

In this video, the second in our continuing series outlining the six key findings of our newest Workplace Class Action Report, Jerry Maatman discusses the top 10 employment-related workplace class action settlements and their implications for employers. The numbers may not be what you expect based on prior years.

To learn more:

Click here to order the 13th Annual Workplace Class Action Report.

Click here to sign up for our Webinar.

Stay tuned for key trend number 3 next week.

 

santa1Happy Holiday season to our loyal readers of the Workplace Class Action Blog!

Our elves are busy at work this holiday season in wrapping up our start-of-the-year kick-off publication – Seyfarth Shaw’s Annual Workplace Class Action Litigation Report.

We anticipate going to press in early January, and launching the 2017 Report to our readers from our Blog.

This will be our Thirteenth Annual Report, and the biggest yet with analysis of over 1,300 class certification rulings from federal and state courts in 2016.  The Report will be available for download as an E-Book too.

The Report is the sole compendium in the U.S. dedicated exclusively to workplace class action litigation, and has become the “go to” research and resource guide for businesses and their corporate counsel facing complex litigation. We were again honored this year with a review of our Report by Employment Practices Liability Consultant Magazine (“EPLiC”). Here is what EPLiC said: “The Report is a ‘must-have’ for legal research and in-depth analysis of employment-related class action litigation.  Anyone who practices in this area, whether as an attorney, risk manager, underwriter, or broker cannot afford to be without it. Importantly, the Report is the only publication of its kind in the United States.”  You can read more about the review here.  Furthermore, EPLiC recognized our Report as the “state-of-the-art word” on workplace class action litigation.

The 2017 Report will analyze rulings from all state and federal courts – including private plaintiff class actions and collective actions, and government enforcement actions –  in the substantive areas of Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, and the Class Action Fairness Act of 2005. It also features chapters on EEOC pattern or practice rulings, state law class certification decisions, and non-workplace class action rulings that impact employers. The Report also analyzes the leading class action settlements for 201 for employment discrimination, wage & hour, and ERISA class actions, as well as settlements of government enforcement actions, both with respect to monetary values and injunctive relief provisions.

Information on downloading your copy of the 2017 Report will be available on our blog in early January. Happy Holidays!

#16-3130 2016 WCAR Tickit Icon R!By Lorie Almon, Gerald L. Maatman, Jr., and Amanda Sonneborn

Back by popular demand, our Annual Workplace Class Action Litigation Report Webinar is on Monday, February 1, 2016. Click here to register and attend. It’s free!

Across all varieties of workplace litigation, class action dynamics increasingly have been shaped and influenced by recent rulings in the U.S. Supreme Court. This past year the Supreme Court issued several key decisions on complex employment litigation issues and accepted more cases for review that are posed for rulings this coming year. Some decisions may be viewed as hostile to the expansive use of Rule 23, while others are hospitable and strengthen the availability of class actions against employers.

For an interactive analysis of 2015 decisions and emerging trends, please join us for our annual webinar offered in conjunction with the publication of our 12th Annual Workplace Class Action Litigation Report.  The Report’s author, Gerald L. Maatman, Jr., along with Lorie Almon, chair of our wage & hour group, and Amanda Sonneborn of our ERISA class action group, will cover a changed national landscape in workplace class action litigation.

In our accompanying webinar, highlights from the Report will outline a number of key trends for employers in 2016, including:

  • The Supreme Court’s pro-worker and pro-business rulings through which employers must carefully thread the needle
  • The top 10 employment-related class action settlements that reached an all-time high in 2015 and the federal and state court rulings that were more favorable for the plaintiffs’ bar in employment-related cases in 2015
  • What employers can expect as wage & hour litigation, specifically FLSA filings, rose for the sixth straight year to a new record high and new scrutiny of independent contractor and joint employment relationships are expected to drive this number even higher in 2016
  • The Department of Labor and Equal Employment Opportunity Commission’s continued aggressive litigation approaches in 2015 and rebound from the record low aggregate settlement recoveries of 2014, showing employers the agencies focus on “big impact” lawsuits

The date and time of the webinar is February 1, 2016:

1:00 p.m. to 2:00 p.m. Eastern Time

12:00 p.m. to 1:00 p.m. Central Time

11:00 a.m. to 12:00 p.m. Mountain Time

10:00 a.m. to 11:00 a.m. Pacific Time

Speakers: Lorie Almon, Gerald L. Maatman, Jr., and Amanda Sonneborn

#16-3130 2016 WCAR Tickit Icon R!By Gerald L. Maatman, Jr.

Our 2016 Workplace Class Action Report is now available. At 853 pages, it analyzes 1,314 rulings and is our biggest and best Report ever.

Click here to order your copy in eBook format. Click here to download Chapter 1 on the 2015 Executive Summary/Key Trends. Our annual webinar on the Report is now set for February 1, 2015, and a link to register for the webinar is here.

The Report is the sole compendium in the U.S. dedicated exclusively to workplace class action litigation, and has become the “go to” research and resource guide for businesses and their corporate counsel facing complex litigation. We were humbled and honored by the review of our Report by Employment Practices Liability Consultant Magazine (“EPLiC”) – the review is here. EPLi said: “The Report is the singular, definitive source of information, research, and in-depth analysis on employment-related class action litigation. Practitioners and corporate counsel should not be without it on their desk, since the Report is the sole compendium of its kind in the United States.”

The 2016 Report analyzes rulings from all state and federal courts – including private plaintiff class actions and collective actions, and government enforcement actions –  in the substantive areas of Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, and the Class Action Fairness Act of 2005. It also features chapters on EEOC pattern or practice rulings, state law class certification decisions, and non-workplace class action rulings that impact employers. The Report also analyzes the leading class action settlements for 2015 for employment discrimination, wage & hour, and ERISA class actions, as well as settlements of government enforcement actions, both with respect to monetary values and injunctive relief provisions.

We hope our loyal blog readers will enjoy it!

Executive Summary

Workplace class action litigation often poses unique “bet-the-company” risks for employers. An adverse judgment in a class action has the potential to bankrupt a business. Likewise, the on-going defense of a class action can drain corporate resources long before the case reaches a decision point. Companies that do business in multiple states are also susceptible to “copy-cat” class actions, whereby plaintiffs’ lawyers create a domino effect of litigation filings that challenge corporate policies and practices. Hence, workplace class actions can adversely impact a corporation’s market share, jeopardize or end the careers of senior management, and cost millions of dollars in defense fees. For these reasons, workplace class action litigation risks are at the top of the list of problems that keep business leaders up at night.

Skilled plaintiffs’ class action lawyers and governmental enforcement litigators are not making that challenge any easier. They are continuing to develop new theories and approaches to prosecuting complex employment litigation. In turn, the events of the past year in the workplace class action world demonstrate that the array of litigation issues facing businesses are continuing to accelerate while also undergoing significant change. Governmental enforcement litigation pursued by the U.S. Equal Employment Commission (“EEOC”) and the U.S. Department of Labor (“DOL”) also manifests an aggressive “push-the-envelope” agenda of two activist agencies, with regulatory oversight of workplace issues continuing as a high priority. The combination of these factors are challenging businesses to integrate their litigation and risk mitigation strategies to navigate these exposures. These challenges are especially acute for businesses in the context of complex workplace litigation.

Key Trends Of 2015

An overview of workplace class action litigation developments in 2015 reveals five key trends.

First, class action dynamics increasingly have been shaped and influenced by recent rulings of the U.S. Supreme Court. Over the past several years, the Supreme Court has accepted supreme courtmore cases for review – and issued more rulings than ever before that have impacted the prosecution and defense of class actions and government enforcement litigation. The past year continued that trend, with several key decisions on complex employment litigation issues, and more cases accepted for review that are posed for rulings in 2016. While the Supreme Court led by Chief Justice John Roberts is often thought to be pro-business, the array of its key rulings impacting class action workplace issues is anything but one-dimensional. Some decisions may be viewed as hostile to the expansive use of Rule 23, while others are hospitable and strengthen the availability of class actions. Further, the Supreme Court has declined several opportunities to impose more restraints on class actions, and by often deciding cases on narrow grounds, it has left many gaps to be filled in by and thereby fueled disagreements arising amongst lower federal courts. Suffice it to say, the range of rulings form a complex tapestry that precludes an overarching generalization that the Supreme Court is pro-business or pro-worker on class actions.

Second, the monetary value of employment-related class action settlements reached an all-time high in 2015. The plaintiffs’ employment class action bar and governmental enforcement litigators successfully translated their case filings into larger class-wide settlements at unprecedented levels. The top ten settlements in various employment-related categories totaled $2.48 billion over the past year as compared to $1.87 billion in 2014. As success in the class action litigation context often serves to encourage pursuit of more class actions by “copy-cat” litigants, 2016 is apt to see the filing of more class actions than in previous years.

#15-3099 2015 WCAR Infographics - Aggregate Settlement Amounts R

Third, federal and state courts issued more favorable class certification rulings for the plaintiffs’ bar in 2015 than in past years. In addition to converting their class certification rulings into class action settlements with higher values and pay-outs, plaintiffs’ lawyers continued to craft refined and more successful class certification theories to counter the more stringent Rule 23 certification requirements established in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), and Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). In the areas of employment discrimination, wage & hour, and ERISA class actions, the plaintiffs’ bar scored exceedingly well in securing class certification rulings in 2015. Statistically, the plaintiffs’ bar secured class certification at an astounding rate of 75% of cases in 2015. In sum, class actions continue to be certified in significant numbers and certain “magnet” jurisdictions continue to issue decisions that encourage or, in effect, force the resolution of large numbers of claims through class action mechanisms.

#15-3099 2015 WCAR Infographics - U.S. Circuit Courts of Appeal R7

Fourth, complex employment-related litigation filings are up from past years, but by far and away, wage & hour class actions and collective actions are the leading type of “high stakes” lawsuits being pursued by the plaintiffs’ bar. Case filing statistics for 2015 reflected that wage & hour litigation outpaced all other categories of lawsuits, and increased yet again over the past year, with no end in sight of the crest of the tidal wave of case filings. Additional factors set to coalesce in 2016 – including new FLSA regulations, the impact of digital technology, and increased scrutiny of independent contractor and joint employer relationships – are apt to drive these exposures even higher for Corporate America.

Fifth, government enforcement lawsuits brought by the DOL and EEOC continued the aggressive litigation programs of both agencies. Settlement numbers for government enforcement litigation in 2015 increased substantially over 2014, as did the litigation dockets of the DOL and the EEOC. This trend is critical to employers, as both agencies have a focus on “big impact” lawsuits against companies and “lead by example” in terms of areas that the private plaintiffs’ bar aims to pursue.

Implications For Employers

The one constant in workplace class action litigation is change. More than any other year in recent memory, 2015 was a year of great change in the landscape of Rule 23. As these issues play out in 2016, additional chapters in the class action playbook will be written.

The lesson to draw from 2015 is that the private plaintiffs’ bar and government enforcement attorneys are apt to be equally, if not more, aggressive in 2016 in bringing class action and collective action litigation against employers.

These novel challenges demand a shift of thinking in the way companies formulate their strategies. As class actions and collective actions are a pervasive aspect of litigation in Corporate America, defending and defeating this type of litigation is a top priority for corporate counsel. Identifying, addressing, and remediating class action vulnerabilities, therefore, deserves a place at the top of corporate counsel’s priorities list for 2016.

00-money-bagBy Christopher M. Cascino and Gerald L. Maatman, Jr.

In In Re Southwest Airlines Voucher Litigation, Case No. 13-3264 (7th Cir. Aug. 20, 2015), the U.S. Court of Appeals for the Seventh Circuit upheld a fee award to class counsel in a class action that resulted in a “coupon settlement” – a settlement in which the defendant agrees to issue coupons to the class members.  In upholding the fee award, the Seventh Circuit also discussed the propriety of a number of settlement provisions and practices that are frequently at issue in class action settlement negotiations.  While not a workplace class action, this decision should be of interest to any employers who are involved in class action litigation because it provides guidance about how courts in the Seventh Circuit and beyond will view certain class action settlement provisions and practices.

Case Background

Southwest Airlines issued vouchers to its “Business Select” passengers that could be redeemed for one free in-flight alcoholic beverage.  Some passengers saved their beverage vouchers so they could use them on later flights.  In August 2010, Southwest Airlines announced that these vouchers could only be used on the flight covered by the “Business Select” ticket.  The plaintiffs filed a class action against Southwest Airlines for breach of contract, unjust enrichment, and violations of state consumer fraud laws.

The district court dismissed the unjust enrichment and consumer fraud claims as being preempted by the Airline Deregulation Act.  The parties subsequently agreed to settle the remaining breach of contract claim on a class-wide basis.  Under the terms of the settlement, Southwest Airlines agreed to provide all class members with a  voucher that was good for one free in-flight alcoholic beverage and further agreed to pay class counsel $3 million in attorneys’ fees.  The parties also agreed on a “clear-sailing” clause that provided that Southwest Airlines would not object to the attorneys’ fee request up to the agreed-to amount, and further agreed to a “kicker” clause, which provided that, if the district court were to reduce the fee award, the reduction would benefit Southwest Airlines rather than the class.  The parties also agreed on limited injunctive relief that would constrain how Southwest could issue vouchers in the future.

Several class members objected to the class settlement, focusing primarily on the fee award.  They argued that the settlement was a “coupon settlement” within the meaning of the Class Action Fairness Act (“CAFA”), and that therefore the fee award needed to be a percentage of the value of the vouchers actually redeemed by class members.  As such, they contended that class counsel sought inflated fees to the detriment of the class. They further argued that the settlement agreement was unfair because it contained the “clear-sailing” and “kicker” clauses, which manifested the lack of a fair and adequate settlement.

The district court agreed that the CAFA applied, but held that attorneys’ fees nonetheless could be calculated using the lodestar method of determining attorneys’ fees.  Under this method, fees are calculated by multiplying the hours spent on litigation by a reasonable hourly rate and then adjusting the award based on various factors, such as whether the work was taken on a contingency basis and the quality of the result.  Using this method, the district court awarded $1,649,118 in attorneys’ fees.  The district court further held that the “clear-sailing” and “kicker” clauses did not render the settlement agreement unfair because the class was receiving what amounted to the full value of their claims.  Both class counsel and several class members appealed that decision.

The Seventh Circuit’s Decision

The Seventh Circuit agreed with the district court that the CAFA applied because, in the Seventh Circuit, a voucher is considered to be a coupon.  Southwest Airlines, at 7.  It then considered whether the district court correctly concluded that the lodestar method nonetheless could be applied to determine the fee award.  Disagreeing with the Ninth Circuit’s decision in In Re HP Inkjet Printer Litigation, 716 F.3d 1173 (9th Cir. 2013), the Seventh Circuit concluded that attorneys’ fees could be calculated using the lodestar method in coupon settlements, while simultaneously warning district courts to use the method only after “evaluat[ing] critically the claims of success of a class receiving coupons.”  Id. at 16-17.

The Seventh Circuit further considered whether the settlement agreement was fair and reasonable in light of Southwest Airlines’ agreement to pay $3 million in attorneys’ fees and in light of the “clear-sailing” and “kicker” clauses.  Addressing the objecting class members’ argument that the fact Southwest Airlines was willing to pay $3 million in attorneys’ fees showed that there was additional money class counsel could have recovered on behalf of the class, the Seventh Circuit held that this argument, while potentially powerful in other cases, was of “little force” here because “the class members [would] receive essentially everything they could have hoped for.  As the district court put it, ‘the class members are getting back exactly what they had before, an unexpired drink voucher.’”  Id. at 18-20.

The Seventh Circuit also addressed the “clear-sailing” and “kicker” clauses.  It pointed out that, while it had “deep skepticism about such clauses, which seem to benefit only class counsel and can be signs of a sell-out,” it would not adopt a rule finding that such clauses per se bar settlement approval.  Id. at 21.  On the record before it, the Seventh Circuit concluded that the settlement agreement was fair and reasonable despite these clauses because the class members got everything they could have hoped for in the settlement.  Id.

Finally, the Seventh Circuit addressed class counsel’s argument that he should receive $3 million in fees because Southwest Airlines agreed to provide that amount.  It held that judicial deference to the provisions of class action settlements is not appropriate, and that the district court did not abuse its discretion in awarding class counsel $1.6 million in fees.  Id. at 22.

Implications For Employers

Employers who are involved in class action litigation should use this case for guidance on how courts in the Seventh Circuit and beyond will react to proposed class action settlement agreements.  Employers should be aware that including “clear-sailing” or “kicker” clauses in such agreements will cause district courts – and any appellate court on appeal if objectors attack the settlement – to more closely examine the fairness of the proposed settlement because such clauses may only benefit class counsel.  In the right circumstances, employers may also be able to use this case to argue that they are providing full relief to a class even when they are not providing monetary relief if they can plausibly argue that they are providing something else that remedies a past wrong.  Finally, employers who agree to provide nearly full relief to the class to settle a class action can use this case to overrule objections to the terms of a class action settlement.

thCAD0SFA4By Christopher M. Cascino and Gerald L. Maatman, Jr.

The EEOC recently announced reaching its largest settlement in the last 2 years in EEOC v. Patterson-UTI Drilling Co. LLC, No. 15-CV-600 (D. Colo. Mar. 24, 2015). In this case, Patterson-UTI agreed to settle a race and national origin pattern or practice claim brought by the EEOC for $12.2 million. This settlement almost equals the approximately $13 million the EEOC received in litigation settlements for the entirety of its Fiscal Year 2014, and represents more than half of the $22.5 million it recovered, in total litigation settlements and verdicts, during the same period.  The high value of this settlement comes as no surprise.  As we reported in our 2014 EEOC-Initiated Litigation Report, found here, the EEOC is focused on achieving high value settlements and verdicts this year to make up for its low recoveries in 2014. This case also confirms another trend we also reported in our 2014 EEOC-Initiated Litigation Report – the EEOC is focused on bringing systemic, class-like cases.

Case Background

The EEOC received a number of charges of discrimination filed by employees and former employees of Patterson-UTI, a Texas-based oil and gas drilling company, alleging discrimination based on race or national origin.  The EEOC concluded that there was reasonable cause to believed that Patterson-UTI engaged in nationwide discrimination against its minority employees.

On March 24, 2015, the EEOC filed suit against Patterson-UTI, alleging that individuals of Hispanic, Latino, African American, American Indian, Asian, and Pacific Islander race and/or national origin were subject to harassment, a hostile work environment, and disparate treatment. Specifically, the EEOC alleged that Patterson-UTI’s minority employees were subject to racial and ethnic slurs, jokes, and comments and verbal harassment and intimidation. The EEOC further alleged that Patterson-UTI’s minority employees were relegated to lower-level positions, were denied training, and were subject to disparate treatment in discipline. Finally, the EEOC alleged that Patterson-UTI retaliated against employees who complained about discrimination or harassment. The EEOC alleged that Patterson-UTI engaged in this prohibited conduct on a nationwide basis.

Settlement Agreement

Patterson-UTI and the EEOC entered into a settlement on the same day the Complaint was filed.  To that end, the parties filed a Proposed Consent Decree with the Court. Under the terms of the settlement as outlined in the Proposed Consent Decree, Patterson-UTI agreed to pay $12,260,000 to a settlement administrator to provide compensation to Patterson-UTI’s purportedly aggrieved minority employees. Such compensation will be available to any minority employee who worked for Patterson-UTI from January 1, 2006, to the date the Proposed Consent Decree is entered.

In addition to agreeing to provide monetary relief, Patterson-UTI also consented to wide-ranging equitable relief.  Among other things, Patterson-UTI agreed to be enjoined from engaging in any employment discrimination practice which discriminates on the basis of race or national origin. It agreed to develop new Equal Employment Opportunity policies and to annually train its employees on its Equal Employment Opportunity policies. It also agreed to create a Vice President position dedicated implementing the Consent Decree and ensuring Patterson-UTI’s employees were protected from unlawful discrimination.

Implications For Employers

This settlement confirms what we predicted in our annual EEOC-Initiated Litigation Report – the EEOC is going to focus this year on recovering large settlements and verdicts this year to try to make up for low recoveries in fiscal year 2014. Employers who find themselves the subject of EEOC conciliation or litigation this year can expect that the EEOC will demand larger recoveries than it has in prior years. Moreover, employers can expect that the EEOC will continue focus on large-scale, systemic litigation. Whether this focus will result in more successes like it achieved in this case or defeats like it received last year in cases like EEOC v. Kaplan Higher Educ. Corp., 748 F.3d 749 (6th Cir. 2014), remains to be seen. Stay tuned.

Readers can also find this post on our EEOC Countdown blog here.

00-money-bagBy Christopher M. Cascino and Jennifer A. Riley

In In Re Capital One Telephone Consumer Protection Act Litigation, Case No. 12-CV-10064, 2015 WL 605203 (N.D. Ill. Feb. 12, 2015), Judge James Holderman of the U.S. District Court for the Northern District of Illinois recently approved an unprecedented $75,455,099 settlement for 1,378,534 class members in a Telephone Consumer Protection Act (“TCPA”) class action and awarded plaintiffs’ counsel a whopping $15,668,265 in fees. As employers and business are increasingly aware, TCPA class actions are becoming ubiquitous because of the severe penalties imposed by the statute and the ability of plaintiffs’ attorneys to leverage those penalties to acquire large settlements and windfall fee awards.

Though not a traditional workplace class action, In Re Capital One Telephone Consumer Protection Act Litigation teaches many valuable lessons for companies and employers alike. Enterprising plaintiffs’ attorneys continue to take advantage of the onerous requirements, stiff penalties, and unclear language of the TCPA to bring suits and receive large fee awards. Until the FCC provides some clarity, companies should ensure that their practices fit comfortably within the confines of the limited circumstances where the use of autodialing and prerecording is unquestionably allowed under the TCPA and FCC regulations.

Case Background

In 1991, Congress enacted the TCPA. “The TCPA prohibits callers from using ‘any automatic telephone dialing system or an artificial or prerecorded voice’ to make any non-emergency call to a cell phone, unless they have the ‘prior express consent of the called party.’” Capital One Telephone Consumer Protection Act Litig. at *3 (quoting 47 U.S.C. § 227(b)(1)(A)(iii)).  It imposes stiff penalties for violations, providing for statutory damages of $500 per call or $1,500 per call for willful or knowing violations. Id. at *3-4.

During 2011 and 2012, plaintiffs filed a number of class and individual actions against Capital One alleging that it violated the TCPA by calling class members’ cell phones using an automated dialing system and/or by using prerecorded messages in its calls to class members to collect on credit card debit. Id. at *1-2. On December 10, 2012, those cases were consolidated before Judge Holderman in the Northern District of Illinois. Id. at *2.

Capital One argued that it obtained consent to call each class member because in every version of its standard cardholder agreement, Capital One provided that customers consented to receive calls through autodialing technology. Id. at *12.  Capital One argued that the TCPA itself allows autodialing and prerecording with “express consent,” and FCC regulations provide that “autodialed collection calls to ‘wireless numbers provided by the called party in connection with an existing debt are made with the ‘prior express consent’ of the called party,’ and are therefore permissible.” Id. (quoting 23 F.C.C.R. 559 ¶ 9).

Plaintiffs pointed to another part of the FCC regulation stating that “prior express consent is deemed to be granted only if the wireless number was provided by the consumer to the creditor, and that such number was provided during the transaction that resulted in the debt owed.” Id. at *12-13 (quoting 23 F.C.C.R. 559 ¶ 9). Plaintiffs argued that, under this part of the regulation, Capital One could only autodial or make prerecorded calls to class members if the class members actually provided their cell phone numbers to Capital One on their respective cardholder agreements. Id.

Case Settlement

Despite the fact that it had a strong argument that the class consented to receiving autodialed and prerecorded calls, Capital One agreed to settle the case for $75,455,099 because of the lack of clarity in the FCC regulation and the enormous potential liability if it lost on the merits. Id. at *6, *11. Of the $75,455,099 settlement, $22,636,530  – 30% of the settlement amount – was designated for class counsel’s fee award, with $5,093,000 designated for notice and administration costs and $47,700,569 – or $2.72 per class member/$34.60 per class member who filed a claim form – designated for the class. Id. at *6-7.

The Court approved the class action settlement amount, though it “cut” class counsel’s fee award from $22,636,530 to $15,668,265. Id. at *39. The Court calculated this award by finding that class counsel should receive 36% of the first $10 million recovered, $25% of the next $10 million recovered, $20% of the next $25 million recovered, and 15% of any amounts recovered thereafter. Id. The Court decided that this graduated recovery scheme was appropriate because class counsel should receive a premium on the first $10 million recovered due to the risks in pursuing this litigation while giving class counsel a gradually reduced incentive to seek additional damages to “account for cases where the marginal costs of increasing the class’s damages recovery are low.” Id. at *38. After the reduction in fees, class members who filed claims should receive $39.66 rather than the originally proposed $34.60. This reduced award still provided class counsel with an enormous windfall of 20.77% of a $75.5 million settlement.

Implications

Because of the size of the fee award given to plaintiffs’ counsel in this case and the ability to leverage the stiff penalties of the TCPA to force settlement, we expect plaintiffs’ lawyers to continue to search for every opportunity to file TCPA suits.  We also expect that plaintiffs’ lawyers will use every ambiguity in the law and FCC regulations and the aforementioned stiff penalties to compel other well-meaning companies to settle dubious TCPA claims and, as a result, receive large fee awards.  Because of this, employers who contact their customers via cell phone should be vigilant regarding their compliance with the TCPA. Companies seeking to collect debts should refrain from using automatic dialing and prerecorded messages without first obtaining an express written consent from each customer that identifies the cell phone number to which the company can place automatic-dialed calls.

By Christopher M. Cascino and Jennifer Riley

On January 14, 2015, in Kragnes v. Schroeder, No. 13-2065 (Iowa App. Ct. Jan. 14, 2015), the Iowa Appellate Court upheld the district court’s decision to cut the fees of plaintiffs’ counsel in a successful class action from a requested $15 million to $7 million. Though not a workplace class action, the decision in Kragnes is a case study for the grounds to challenge fee awards in class actions.

Case Background

In 1960, the City of Des Moines, Iowa, entered into franchise agreements with its electricity and natural gas providers, providing that each provider would pay Des Moines a percentage of its gross receipts for their sales into Des Moines.  Kragnes v. City of Des Moines, 714 N.W.2d 632, 633 (Iowa 2006). These agreements were then made into ordinances. Id.

On May 6, 2004, then-Iowa Governor Tom Vilsack signed a law phasing out sales and use tax for the sale of gas and electricity for residential use. Id. at 634. Facing budget shortfalls, Des Moines responded by entering into updated franchise agreements with its electric and gas providers that increased the franchise fee. Id. at 635. Lisa Kragnes then filed a class action on behalf of herself and those similarly situated, arguing that the increased franchise fees were illegal taxes. Id. at 636.

Ultimately, the Iowa courts determined that the increased fees were illegal taxes, and that Des Moines had to refund approximately $40 million to its taxpayers. Shroeder at 2. The $40 million was placed into a fund so that it could be remitted to the Des Moines taxpayers after class counsels’ fees were removed.

Class counsel requested $15 million in fees, or approximately 37% of the $40 million fund. Id. The district court determined that this amount was “not fair to the class members” and that an award of $7 million in fees, or approximately 18% of the fund, was appropriate. Id. at 3. Class counsel appealed the award, claiming it was “unreasonably low.” Id.

The Appellate Court’s Decision

The Iowa Appellate Court first considered whether the district court erred in considering criteria other than those laid out in the Iowa Rules of Civil Procedure and Rules of Professional Conduct in deciding to reduce class counsel’s fee award. Specifically, the Appellate Court considered whether the district court’s decision to consider the fact that “[t]he money used to pay the attorneys’ fees and expenses will come from the very residents who have already been wronged in the illegal extraction of franchise fees” was an abuse of discretion. Id. at 6 (emphasis omitted). The Appellate Court held that the district court properly considered this a factor, since the applicable rules do not preclude consideration of additional factors in fixing a fee award. Id.

The Appellate Court further rejected class counsel’s argument that it was entitled to the 37% fee because that was the amount stated in its contingency fee agreement with the class representative and published to the class. Id. at 7. The Appellate Court pointed out that judges are not bound by fee agreements between class counsel and the class representative, and upheld the district court’s decision that the award could be reduced in spite of the agreed and published fee arrangement. Id. at 7-8.

Finally, the Appellate Court held that an award of 18% of the $40 million fund was not unreasonable. The Appellate Court reasoned that, given the large size of the recovery, the percentage of the recovery should be reduced to make it reasonable. Id. at 8-9.

Implications For Employers

Employers in Iowa and elsewhere who are subject to class actions should use this case to encourage reasonable settlement demands from class counsel. It can be used to convince class counsel that a large settlement or verdict might not necessarily increase their personal recovery, as courts are more likely to reduce the percentage of damages allocated to class counsel’s fees when there are larger verdicts or settlements.

This case also gives employers a new, potentially powerful argument for why class counsel’s fees should be reduced. The Appellate Court found that class counsel’s fees can be reduced as unreasonable if they represent a significant percentage of the recovery because, in the very act of awarding fees, courts force the class to pay class counsel in the form of a smaller recovery for the wrong class counsel claims they suffered. This argument should concern class counsel since, when it is addressed to them, they will have to argue why the class they have been claiming is so hurt that they need an enormous recovery should have their recovery reduced to pay class counsel’s (often) exorbitant fees. That this is potentially concerning to class counsel is confirmed in the Schroeder case itself, with class counsel trying to dodge the issue by asserting the district court abused its discretion by even considering the issue.

Given the sums at issue, we anticipate a further appeal to the Iowa Supreme Court. Stay tuned.