By Gerald L. Maatman, Jr., Pamela Q. Devata, & Robert T. Szyba

Seyfarth Synopsis: Following remand from the U.S. Supreme Court, the Ninth Circuit found that the plaintiff suing Spokeo, Inc. under the Fair Credit Reporting Act alleged sufficient injury to establish standing to proceed in federal court and to proceed with his class action.

On August 15, 2017, the U.S. Court of Appeals for the Ninth Circuit issued the latest opinion in the Robins v. Spokeo, Inc. litigation that gave us last year’s U.S. Supreme Court opinion on Article III standing (which we discussed here).  After the Supreme Court found that the Ninth Circuit, in its prior February 2014 opinion (found here), had analyzed only whether the alleged injury was particular to Plaintiff, it remanded the case back for the second part of the analysis to determine whether Plaintiff alleged a concrete injury-in-fact, as required by Article III.

This new ruling is a “must read” for employers, as it has the potential to allow plaintiffs to launch more workplace class actions.

Case Background

The case was originally filed in the U.S. District Court for the Central District of California in 2010 against Spokeo, Inc., which operates an online search engine by the same name that compiles publicly available information on individuals into a searchable database on the internet.  The plaintiff alleged that Spokeo’s database showed inaccurate information about him, such as that he had a greater level of education and more professional experience than he in fact had, that he was financially better off than he actually was, and that he was married (he was not) with children (he did not have any).  Instead of any actual damages, the plaintiff alleged that Spokeo, as a consumer reporting agency, failed to “follow reasonable procedures to assure maximum possible accuracy of the information concerning” Plaintiff, and that its violation of section 1681e(b) of the Fair Credit Reporting Act (FCRA) was “willful” in order to seek statutory damages of between $100 and $1,000 for himself, as well as for each member of a putative nationwide class.

U.S. Supreme Court Decision

The issue of whether the plaintiff had standing to sue for the alleged statutory violation made its way to the U.S. Supreme Court, which in 2016 (in a 6 to 2 opinion by Justice Samuel A. Alito, Jr.) explained that “an invasion of a legally protected interest” that is both “concrete and particularized” is required to establish standing to proceed in federal court.  To be concrete, the alleged injury must “actually exist” and must be “real” and not “abstract.”  The Court further discussed that plaintiffs do not “automatically” meet the injury-in-fact requirement where the violation of a statutory right provides a private right of action.   The plaintiff here, therefore, “could not, for example, allege a bare procedural violation divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III.”  Because the Ninth Circuit had not completed both parts of the standing analysis, however, the case was remanded for further review.

Ninth Circuit’s Standing Analysis

In light of the Supreme Court’s directive, the Ninth Circuit opened by affirming the threshold principle that “even when a statute has allegedly been violated, Article III requires such violation to have caused some real—as opposed to purely legal—harm to Plaintiff.”  The Court explained that intangible harms, such as restrictions on First Amendment freedoms and harm to one’s reputation, can be concrete enough for standing, though the Court noted this is a “murky area.” Either way, Plaintiff cannot simply point to a statutory cause of action to establish an injury-in-fact.

Turning to its standing analysis of the plaintiff’s particular allegations, the Ninth Circuit conducted a two-step inquiry:

  1. “whether the statutory provisions at issue were established to protect [the plaintiff’s] concrete interests (as opposed to purely procedural rights)”; and, if so
  2. “whether the specific procedural violations alleged in [the] case actually harm, or present a material risk of harm to, such interests.”

First, the Ninth Circuit cited a long history of protections against dissemination of false information about individuals that underlies the FCRA, including common law protections against defamation and libel, to find that the interests protected by the FCRA are real and concrete.  The harm alleged in the case, the Ninth Circuit concluded, “has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit,” even if it is not the exact historical harm itself.

In the second step, the Ninth Circuit reasoned that in many cases, “a plaintiff will not be able to show a concrete injury simply by alleging that a consumer-reporting agency failed to comply with one of the FCRA’s procedures.”  The statute may be violated, but the violation alone is not enough.  Here, however, the plaintiff pointed to multiple examples of information (e.g., his education level, etc.) that might be relevant to a prospective employer.  A court also has to look at the nature of the inaccuracy as part of its analysis.  Even if the inaccuracy has a debatable negative impact (e.g., a greater level of education could make a plaintiff deemed to be overqualified and passed over for a job), the information is nevertheless relevant, and the Court held, its dissemination is not simply a technical statutory violation.  The Ninth Circuit also pointed out that the injury alleged in this case was not speculative because the dissemination of information already occurred, and the dissemination itself was the harm.  The Court commented that further alleged harm, such as being able to point to an actual missed job, was not required.

Outlook

Overall, the Ninth Circuit’s decision adopted an expansive interpretation of the type of harm that will suffice for Article III standing, though indicating that this interpretation will not extend so far as to find standing to sue for bare statutory or procedural violations.  In the present case, however, the Ninth Circuit focused on the specific allegedly inaccurate information to find harm, in line with Justice Ginsburg’s dissent (found here) to the Supreme Court’s majority, which was concerned more with the reporting of allegedly false information that “could affect [the plaintiff’s] fortune in the job market.”  Further allegations of actual injury, according to the Ninth Circuit, were not required to establish standing.  However, the Ninth Circuit stopped from opining on other specific circumstances and noted that the specific facts will need to be considered to determine if the threshold of “concrete harm” is satisfied.

Thus, the Ninth Circuit provides further guidance on standing, affirming that bare statutory violations continue to be insufficient.  The specific factual allegations of such cases, however, may present courts with greater latitude to find standing in civil litigation alleging violations of the FCRA, as well as cases under ERISA, the Americans With Disabilities Act, and a host of other workplace statutes.  As courts address similar inquiries, we are likely to see increased guidance regarding standing.   Additionally, with this decision, there seems to be more evidence of a potential split among the federal Courts of Appeals, which could result in another petition to the U.S. Supreme Court.

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

Seyfarth Synopsis:  In Harrington v. Sessions, No. 15-8009, No. 16-5285 & No. 16-5286 (D.C. Cir. July 21, 2017), the U.S. Court of Appeals for the D.C. Circuit found that absent class members may intervene in an appellate court proceeding to pursue a Rule 23(f) petition abandoned by a settling class representative, even if the intervention motion is filed after the dismissal of the settling representative’s claims.  The D.C. Circuit’s ruling illustrates that even the denial of class certification and final settlement of a class representative’s claims may not put an end to class action litigation.

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In Harrington v. Sessions, No. 15-8009, No. 16-5285 & No. 16-5286, 2017 U.S. App. LEXIS 13111 (D.C. Cir. July 21, 2017), the D.C. Circuit addressed whether it had jurisdiction to rule upon absent class members’ motion to intervene in an appellate court proceeding to pursue a Rule 23(f) petition abandoned by a settling named plaintiff-appellant.  The absent class members filed their motion to intervene after the settling plaintiff-appellant had already filed a stipulated dismissal of his settled claims.

The D.C. Circuit found that it indeed had jurisdiction to entertain the absent class members’ motion to intervene in the Rule 23(f) petition.  It explained that the elimination of an Article III case or controversy does not preclude a district court or appellate court from entertaining a subsequent motion to intervene for purposes of filing an appeal, as long as the intervenor has a sufficient Article III stake in the appeal.  The D.C. Circuit further opined that absent class members may have a sufficient stake to appeal the denial of class certification even if the named plaintiff does not appeal.  As such, the D.C. Circuit found that it had jurisdiction under Rule 23(f) to hear the absent class members’ motion to intervene for purposes of appealing the denial of class certification.

On the merits, the D.C. Circuit found that the absent class members satisfied the prerequisites for intervention as a matter of right and, thus, it addressed their Rule 23(f) petition.  However, the D.C. Circuit declined to review the denial of class certification under Rule 23(f) as the absent class members presented no special circumstances justifying such review.

Case Background

In 2008, U.S. Marshal David Grogan filed a putative class action in the U.S. District Court for the District of Columbia against the U.S. Marshals Service (the “Marshals”) alleging racial discrimination under Title VII of the Civil Rights Act of 1964.  2017 U.S. App. LEXIS 13111, at *2-3 (D.C. Cir. July 21, 2017).  The complaint sought both injunctive and monetary relief, but alleged that “injunctive and declaratory relief [we]re the predominant forms of relief sought.”  Id. at *3.

By 2013, after pleading and motion practice, the named plaintiff Herman Brewer (“Plaintiff”) was the sole plaintiff representing the putative class.  Id. at *4.  Plaintiff retired from the Marshals a few months before discovery closed.  Id.  After discovery closed, Plaintiff filed: (i) a motion to amend the complaint to substitute four additional plaintiffs as class representatives; and (ii) a Rule 23 motion for class certification.  Id. at *5.

The district court denied Plaintiff’s motion to substitute new plaintiffs, finding that Plaintiff had not diligently pursued such substitution.  Id.

The district court also denied Plaintiff’s motion for class certification.  Id. at *5-6.  The district court found that, because Plaintiff had retired and was no longer an employee of the Marshals, Plaintiff could not adequately represent a class predominantly seeking injunctive relief.  Id. at *6.  The district court also found that Plaintiff’s individual claims for monetary relief were not typical of the class-wide claims for injunctive relief and, as such, did not provide a basis to certify a class either.  Id.  Finally, the district court refused to certify a narrower class, seeking damages only, because doing so constituted “claim splitting” and jeopardized class members’ ability to subsequently pursue other claims in the face of potential res judicata arguments. Id.

Plaintiff timely petitioned the D.C. Circuit under Rule 23(f) for interlocutory review of the denial of class certification.  Id.  However, during the pendency of the petition, Plaintiff settled his individual claims and filed a stipulation of dismissal under Rule 41(a)(1)(A)(ii).  Id. at *7.

On the same day Plaintiff filed the stipulated dismissal, three current and one former African-American employee of the Marshals (the “Intervenors”) moved to intervene in the district court to appeal the district court’s denial of class certification and moved to intervene in the appellate court to pursue the Rule 23(f) petition filed by Plaintiff.  Id.

While their motion to intervene in the district court was still pending, the Intervenors filed a notice of appeal from: (i) Plaintiff’s stipulated dismissal; (ii) the order denying class certification; and (iii) the “effective” denial of their motion to intervene insofar as the district court had not decided their motion to intervene within the time Intervenors believed they had to file a notice of appeal (i.e., within 60 days of Plaintiff’s stipulated dismissal).  Id. at *7-8.  Thereafter, the district court dismissed the Intervenors’ motion to intervene based on the rationale that the Intervenors’ notice of appeal stripped the district court of jurisdiction to rule on the motion.  Id. at *8.

On the Intervenors’ motion, Plaintiff’s Rule 23(f) petition and the Intervenors’ appeal were consolidated before the D.C. Circuit.  Id.

The Decision

The D.C. Circuit first addressed whether it had jurisdiction.  Id. at *9.  The stipulated dismissal of Plaintiff’s claims, which removed any live Article III case or controversy from the district court and appellate court, presented a quandary.  Although intervention could cure that quandary by substituting Intervenors for Plaintiff, the D.C. Circuit had to have jurisdiction in the first place to rule on the intervention motion.  See id. (“Thus, the situation may appear to present a Catch-22: Intervention can overcome the apparent jurisdictional problem created by the stipulated dismissal, but a court may grant intervention only if it has jurisdiction to do so.”).  The D.C. Circuit resolved the quandary by finding that it had jurisdiction over the Intervenors’ motion to intervene in the Rule 23(f) petition.  Id.

In so finding, the D.C. Circuit rejected the decisions of other courts that have held that a stipulated dismissal precludes a court from taking further action on motions filed after, or even before, such a dismissal.  Id. at *11-12.  The D.C. Circuit explained that a stipulated dismissal and a court-ordered dismissal are no different in their jurisdictional effect – both eliminate a live case or controversy.  Id. at *12-14.   As such, the D.C. Circuit found that it had jurisdiction to entertain any motion after a stipulated dismissal that it could entertain after a court-ordered dismissal.

In that regard, the D.C. Circuit explained that it is well-established that, even in the absence of a live controversy, courts retain jurisdiction to hear motions to intervene for purposes of appealing dismissed claims, as long as the intervenor has an Article III interest sufficient to pursue the appeal.  Id. at *14 (citations omitted).  Moreover, the D.C. Circuit asserted that it is similarly well-established that absent class members may have a sufficient Article III interest to appeal the denial of class certification even if the named plaintiff does not appeal.  Id. at *14-15 (citing Twelve John Does v. District of Columbia, 117 F.3d 571, 575 (D.C. Cir. 1997)).  Indeed, “[w]hen an absent plaintiff intervenes to appeal a denial of class certification, he has the same Article III stake on appeal as he would have had in the action had the class been certified.”  Id. at *15 (citing Twelve John Does, 117 F.3d 571, 575).  The D.C. Circuit reasoned that, because the absence of an Article III controversy does not preclude a court from hearing a motion to intervene for purposes of appealing and because an appellate court has jurisdiction to hear an absent plaintiff’s appeal from the denial of class certification, it had jurisdiction under Rule 23(f) to hear the Intervenors’ motion to intervene.  Id. at *15-16.

In finding such jurisdiction, the D.C. Circuit distinguished the recent U.S. Supreme Court decision of Microsoft Corp. v. Baker, 137 S. Ct. 1702, 1712-1713 (2017), wherein the Supreme Court held that a plaintiff’s voluntary dismissal of his claims, subsequent to an appellate court’s denial of his Rule 23(f) petition, did not create a final, appealable order.  Harrington, 2017 U.S. App. LEXIS 13111, *16.  The D.C. Circuit explained that, unlike Baker, the issue here involved only a petition for review under Rule 23(f), not an appeal from a final order.  Id. at *17.  Furthermore, equitable considerations present in Baker, where the plaintiff had orchestrated guaranteed appellate review of his Rule 23 claims through voluntary dismissal, were not present here.  Id.  (For further discussion of Microsoft Corp. v. Baker, see here).

Next, the D.C. Circuit turned to the motion to intervene.  It stated that it could address the motion to intervene in the first instance on appeal primarily for purposes of judicial economy.  Harrington, 2017 U.S. App. LEXIS 13111, *18-19 .  The D.C. Circuit then found that the Intervenors easily met the criteria for intervention as a matter of right under Rule 24(a)(2).  Id. at *19-23.

Nonetheless, the D.C. Circuit rejected the Intervenors’ Rule 23(f) request and declined to review the district court’s denial of class certification.  Id. at *24-31.  It found that the Intervenors failed to show that any special circumstances warranted such review.  Id.

Finally, the D.C. Circuit dismissed the Intervenors’ appeal from final judgment in the case below, restoring the district court’s jurisdiction over the case.  Id. at *31.  It ordered that, on remand, the district court should allow reasonable time for the Intervenors to file both a motion to substitute a new class representative and a renewed motion for class certification.  Id.

Implication for Employers

Defeating the class representative does not necessarily end class litigation.  Absent class members may be able to pursue such litigation after the class representative exits.  Accordingly, employers should litigate with an eye toward defeating the class even where they anticipate that a named representative is inadequate or that the claims of a named representative may be defeated.

supreme-court-546279_960_720By: Michael L. DeMarino and Gerald L. Maatman, Jr.

Seyfarth Synopsis:  In Bristol-Myers Squibb Company v. Superior Court of California, et al., No. 16-466 (U.S. June 19, 2017), the U.S. Supreme Court articulated the narrow circumstances under which specific jurisdiction will lie when it rejected the California Supreme Court’s “sliding scale” approach to evaluating specific jurisdiction. The decision is decidedly employer-friendly. As a new weapon against forum shopping, this case is a must read for any employer facing class action litigation in a jurisdiction where the company is not incorporated or does not have its principal place of business.

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Case Background

In Bristol-Myers Squibb Company v. Superior Court of California, et al., No. 16-466 (U.S. June 19, 2017), 86 California residents and 592 non-residents from 33 other states sued Bristol-Myers in California  state court, asserting California state law claims for product liability, negligent representation, and misleading advertising. Id. at 2. Plaintiffs specifically alleged that the company’s drug, Plavix, damaged their health.  Id. In contrast to the California residents, the non-resident plaintiffs did not allege that they obtained Plavix in California, nor did they claim that they were injured by Plavix or treated for their injuries in California. Id.

After Bristol-Myers challenged personal jurisdiction with respect to the non-residents’ claims in the trial Court and the California Court of Appeal, the California Supreme Court held that specific jurisdiction existed. Id.

Although the California Supreme Court determined that general jurisdiction was lacking, it nonetheless found that specific jurisdiction existed under its “sliding scale” approach. Under this approach, the more wide-ranging the defendants’ forum contacts, the greater the connection between the forum contacts and the claim. Id. at 3. Because of Bristol-Myers’ extensive contacts with California, the California Supreme Court required less direct connection between the company’s forum activities and the non-residents’ claims than otherwise might be required. Id. Particularly important to the California Supreme Court’s determination that specific jurisdiction existed was that the claims of the California residents and the claims of the non-residents were similar. Id.

The Company thereafter successfully secured review by the U.S. Supreme Court.

The Decision

In an 8-1 decision, the U.S. Supreme Court held that the California Supreme Court failed to identify an adequate link between the State of California and the 592 non-resident plaintiffs to support specific jurisdiction.  After explaining that specific jurisdiction requires an “affiliation between the forum and the underlying controversy” the Supreme Court noted that the “sliding scale” approach relaxes this requirement and “resembles a loose and spurious form of general jurisdiction.”  Id. at 7.

The Supreme Court further explained that “[t]he mere fact that other plaintiffs were prescribed, obtained, and ingested Plavix in California — and allegedly sustained the same injuries as did the non-residents — does not allow the State to assert specific jurisdiction over the non-residents’ claims.” Id. at 8. Importantly, the Supreme Court emphasized “[w]hat is needed —  and what is missing here — is a connection between the forum and the specific claims [i.e., the non-residents’ claims] at issue.” Id.

Implication For Employers

Although the Supreme Court’s decision does little to alter the requirements of specific jurisdiction, it is nonetheless important in its practical effect of impeding forum shopping in the class action context. Plaintiffs, for instance, will have a much more difficult time suing in a jurisdiction where the company is not “at home” for general jurisdiction purposes and where the company’s conduct in the forum state is not sufficiently connected to the claims of nonresident plaintiffs.

This decision is particularly important to employers with a national presence or satellite offices. The lesson here is employers should not take personal jurisdiction for granted, particularly when defending claims brought by residents and nonresidents of a forum state where there is no general jurisdiction.

supreme-court-546279_960_720By Gerald L. Maatman, Jr., Michael L. DeMarino, and John S. Marrese

Seyfarth Synopsis:  In Microsoft Corp. v. Baker, No. 15-457 (U.S. June 12, 2017), the U.S. Supreme Court ruled on a procedural issue that is of importance in any class action in terms of when and in what circumstances a plaintiff may appeal orders that terminate their rights in a case. In that respect, the decision is required reading for any employer involved in class action litigation.

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In Microsoft Corp. v. Baker, No. 15-457, 582 U.S. ___ (2017), the Supreme Court was confronted with the question of whether courts of appeal have jurisdiction to review an order denying class certification after the named plaintiffs  have voluntary dismissed their claims with prejudice.

Litigants have an immediate right to appellate review only of “final decisions of the district courts,” as set forth in 28 U.S.C. § 1291. The denial of class certification is not a final order and, therefore, not necessarily entitled to such immediate review.  Nonetheless, Fed. R. Civ. P. 23(f) provides litigants the opportunity to appeal an adverse class certification decision, which the appellate court has unfettered discretion to review or not.

If the appellate court decides not to exercise discretion over such an appeal, plaintiffs still have options to ultimately obtain appellate review, including petitioning the district court to certify the interlocutory order for appeal pursuant to 28 U.S.C.  § 1292 or pursuing the litigation to a final judgment at which point the class certification denial becomes final and appealable.  However, as the Supreme Court’s decision in Baker makes clear, what plaintiffs may not do is circumvent that process by dismissing a case with prejudice after the denial of class certification in order to manufacture the appellate court’s jurisdiction over such an appeal. According to the Supreme Court, such a tactic impermissibly stretches Section 1291, circumvents the rules governing interlocutory appeals, including 23(f), and leads to protracted and piecemeal litigation.

Case Background

Plaintiffs, purchasers of Microsoft’s Xbox 360 console, filed a class action alleging design defect of the console.  (Slip Op. 8.)  The district court struck Plaintiffs’ class allegations based on the denial of class certification in a previously-filed case of the same nature, finding that comity mandated its decision.  (Id. at 8-9.)

Plaintiffs petitioned the Ninth Circuit for appellate review of the interlocutory order under Rule 23(f), but the Ninth Circuit declined to exercise jurisdiction.  Id. at 9.  Rather than pursue their individual claims further, Plaintiffs moved to voluntarily dismiss their claims with prejudice and represented to the district court that they would appeal the order striking their class allegations thereafter. (Id. at 10.)  Microsoft stipulated to the voluntary dismissal with prejudice, but argued that Plaintiff would have no right to appeal.  The district court granted the stipulated motion to dismiss.  Id.

As promised, Plaintiffs only appealed the district court’s decision to strike their class allegations.  Id.  The Ninth Circuit held that it had jurisdiction to entertain the appeal under the 28 U.S.C. § 1291, rejecting Microsoft’s argument that Plaintiffs had impermissibly circumvented Rule 23(f).  Id.  Then the Ninth Circuit reversed the district court’s decision to strike Plaintiffs’ class allegations. Id. at 11.  The Ninth Circuit expressed no opinion as to the merits of class certification, but merely found that comity did not require denial on the pleadings; such a decision would more properly be made on Plaintiffs’ eventual motion for class certification.  Id.

The Supreme Court granted certiorari to address a Circuit split over the question: “Do federal courts of appeals have jurisdiction under [28 U.S.C.] § 1291 and Article III of the Constitution to review an order denying class certification (or . . . an order striking class allegations) after the named plaintiffs have voluntarily dismissed their claims with prejudice?”  Id.

The Decision

The Supreme Court, sitting with eight justices, unanimously found that the Ninth Circuit had improperly exercised discretion over Plaintiffs’ appeal.

Justice Ginsburg, authoring the opinion of the Court in which Justices Kennedy, Breyer, Sotomayor and Kagan joined, ruled that Plaintiffs’ voluntary dismissal with prejudice did not transform the district court’s denial of class certification into a final order.  Such a tactic, the Supreme Court concluded, impermissibly attempts to subvert the final judgment rule in § 1291 as well as the process Congress implemented for refining that rule and providing for appeals of interlocutory orders.  Id. at 12.

The Supreme Court explained that Plaintiffs’ tactic encouraged “protracted litigation and piecemeal appeals” as well as indiscriminate review of interlocutory orders.  Id.  Indeed, as the Supreme Court pointed out, under Plaintiffs’ theory, “the decision whether an immediate appeal will lie resides exclusively with the plaintiff” because plaintiff “need only dismiss her claims with prejudice whereupon she may appeal the district court’s order denying class certification.” Id. at 12-13. Thus, if Plaintiffs here had subsequently been denied class certification on remand from the Ninth Circuit, they could have again voluntarily dismissed and forced an appeal of that decision, thereby circumventing the purpose of Rule 23(f) and, in conjunction, the rulemaking process Congress bestowed upon the Supreme Court.  Id. at 13-16.

Justice Thomas, joined by Chief Justice Roberts and Justice Alito issued a concurring opinion, concurring only in the judgment.  Justice Thomas agreed that Plaintiffs could not appeal under the circumstances of this case, but under a different rationale.  Specifically, Justice Thomas concluded that Plaintiffs’ voluntary dismissal with prejudice had indeed resulted in a final appealable order.  However, such dismissal destroyed any live case or controversy.  Accordingly, Plaintiffs had no standing under Article III of the Constitution to bring the appeal.

Implication for Employers

A decision on class certification is often the most significant event in the life of class litigation.  As such, plaintiffs who are denied certification craft inventive strategies to circumvent rules limiting their appellate rights.  With the Baker decision, one such strategy is no longer available to plaintiffs.  Employers should pay careful attention to alternative tactics similarly contravening the purpose and structure of the federal statutes and rules governing appellate review.

100px-US-CourtOfAppeals-9thCircuit-Seal_svgBy Gerald L. Maatman, Jr., Christopher J. DeGroff and Alex W. Karasik

Seyfarth Synopsis: After the U.S. Supreme Court clarified in McLane Co. v. EEOC, No. 15-1248, 2017 U.S. LEXIS 2327 (U.S. 2017), that the scope of review for employers facing EEOC administrative subpoenas was the abuse-of-discretion standard, a relatively high bar of review, the Ninth Circuit applied that standard of review on remand and vacated the District Court’s original decision that denied the enforcement of an EEOC subpoena.

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An often contentious issue in EEOC investigations involves the scope of administrative subpoenas, which can be burdensome for employers when the subpoenas seek a broad range of company-wide information.  When analyzing the standard of review for decisions relating to the enforcement of EEOC subpoenas, in McLane Co. v. EEOC, No. 15-1248, 2017 U.S. LEXIS 2327 (U.S. Apr. 3, 2017), the U.S. Supreme Court held that such decisions were examined under an abuse-of-discretion standard.  The abuse-of-discretion standard sets a relatively high bar for review, as we blogged about here.  Following the U.S. Supreme Court’s remand to the Ninth Circuit in McLane, the Ninth Circuit vacated the District Court’s denial of enforcement of the subpoena and sent the matter back to the District Court for further proceedings.  EEOC v. McLane Co., No. 13-15126, 2017 U.S. App. LEXIS 9027 (9th Cir. May 24, 2017).

For employers, this is an important case to follow as it provides clarification as to the standard of review used when Appellate Courts address district court subpoena enforcement decisions.

Background

The EEOC issued an administrative subpoena as part of its investigation into a charge of discrimination filed by a former employee of a McLane subsidiary.  Id. at *3.  The employee alleged that McLane discriminated against her on the basis of sex when it fired her after she failed to pass a physical capability strength test.  Relevant here, the subpoena requested “pedigree information” (name, Social Security number, last known address, and telephone number) for employees or prospective employees who took the test.  Following the Court’s precedent at the time, the Ninth Circuit applied a de novo review to the District Court’s ruling that the pedigree information was not relevant to the EEOC’s investigation.  Id. at *3-4.  The U.S. Supreme Court vacated the Ninth Circuit’s judgment after holding that a district court’s decision whether to enforce an EEOC subpoena should be reviewed for abuse of discretion.  The U.S. Supreme Court remanded the case to the Ninth Circuit so that the Ninth Circuit could re-evaluate the District Court’s ruling under the proper standard of review.

 The Ninth Circuit’s Decision On Remand

After reviewing the District Court’s decision under the abuse-of-discretion standard, the Ninth Circuit still held that the District Court abused its discretion by denying enforcement of the subpoena.  Id. at *4.  The District Court found that the pedigree information was not relevant “at this stage” of the EEOC’s investigation because the evidence McLane had already produced would “enable the [EEOC] to determine whether the [strength test] systematically discriminates on the basis of gender.”  Id.  The Ninth Circuit rejected this approach, noting that the District Court’s ruling was based on the wrong standard for relevance.  The Ninth Circuit stated that under Title VII, the EEOC may obtain evidence if it relates to unlawful employment practices and is relevant to the charge under investigation.  Quoting EEOC v. Shell Oil Co., 466 U.S. 54, 68-69 (1984), the Ninth Circuit opined that the relevance standard encompasses “virtually any material that might cast light on the allegations against the employer.”  Id. at *5.

Applying Shell Oil, the Ninth Circuit found that the pedigree information was relevant to the EEOC’s investigation since conversations with other McLane employees and applicants who have taken the strength test “might cast light” on the allegations against McLane.  Id.  McLane argued that, given all of the other information it had produced, the EEOC could not show that the production of nationwide pedigree information was relevant to the Charge or its investigation under either a disparate treatment or disparate impact theory.  Id. at *6. The Ninth Circuit construed the District Court’s application of relevance to be a heightened “necessity” standard, and noted that the governing standard was “relevance,” not “necessity.”  Id.

The Ninth Circuit then found that the District Court erred when it held that pedigree information was irrelevant “at this stage” of the investigation.  Id.  Rejecting the District Court’s conclusion that the EEOC did not need pedigree information to make a preliminary determination as to whether use of the strength test resulted in systemic discrimination, the Ninth Circuit held that the EEOC’s need for the evidence—or lack thereof—did not factor into the relevance determination.  Id. at *6-7. While McLane had argued that the pedigree information was not relevant because the charge alleged only a “neutrally applied” strength test, which by definition cannot give rise to disparate treatment, systemic or otherwise, the Ninth Circuit rejected this approach, holding “[t]he very purpose of the EEOC’s investigation is to determine whether the test is being neutrally applied; the EEOC does not have to take McLane’s word for it on that score.”  Id. at *7.  Accordingly, the Ninth Circuit held that because the District Court based its ruling on an incorrect view of relevance, it necessarily abused its discretion when it held that the pedigree information was not relevant to the EEOC’s investigation.

The Ninth Circuit concluded by noting that on remand, McLane was free to renew its argument that the EEOC’s request for pedigree information was unduly burdensome.  Id. at *8. Further, explaining that it did not reach the issue in its original decision, the Ninth Circuit instructed that “[o]n remand, the district court should also resolve whether producing a second category of evidence — the reasons test takers were terminated — would be unduly burdensome to McLane.”  Id.  Accordingly, the Ninth Circuit vacated the District Court’s judgment and remanded for further proceedings.

Implications For Employers

As employers who are confronted with EEOC subpoenas may ultimately find themselves in a subpoena enforcement action, the McLane case is a must-follow in terms of what standard of review will be applied if those district court decisions are later reviewed.  The U.S. Supreme Court’s adoption of the more “hands off” abuse-of-discretion standard means that greater weight will be given to district court decisions.  Nonetheless, the Ninth Circuit’s ruling here illustrates that appellate courts may still be willing to overturn district court decisions to enforce or quash EEOC subpoenas depending on the circumstances.  The decision will also, no doubt, be cited by an emboldened EEOC as authority for its position that expansive pedigree information is relevant in a broad swath of cases.  Understanding these trends will provide useful guidance for employers when deciding if and how to challenge what often can be burdensome demands for information from the EEOC.

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

supreme court sealSeyfarth Synopsis: Yesterday the U.S. Supreme Court handed down its long-awaited decision in McLane Co. v. EEOC, No. 15-1248, 2017 U.S. LEXIS 2327 (U.S. 2017), a decision that clarifies the scope of review for employers facing EEOC administrative subpoenas. The Supreme Court held that such decisions are reviewable under the abuse-of-discretion standard, which is a relatively high bar of review. At the same time, the Supreme Court’s ruling clarifies that EEOC subpoenas are subject to a searching, fact-intensive review that does not lend itself to a “one size fits all” approach.

Background

This case arose out of a Title VII charge brought by a woman who worked as a “cigarette selector,” a physically demanding job, requiring employees to lift, pack, and move large bins of products. After the charging party returned from three months of maternity leave, she was required to undergo a physical capabilities evaluation that was required for all new employees and employees returning from leave or otherwise away from the physically demanding aspects of their job for more than 30 days, regardless of reason. The charging party was allowed three times to meet the level required for her position, but failed each time.  McLane then terminated her employment.

The charging party claimed that her termination was because of her gender, and further alleged disability discrimination. During the investigation of her EEOC charge, the Commission requested, among other things, a list of employees who were requested to take the physical evaluation. Although McLane provided a list that included each employee’s gender, role at the company, evaluation score, and the reason each employee had been asked to take the evaluation, the company refused to provide “pedigree information,” relative to names, social security numbers, last known addresses, and telephone numbers of employees on that list. In the process of negotiating the scope of information that would be provided, the EEOC learned that McLane used its physical evaluation on a nationwide basis. The EEOC therefore expanded the scope of its investigation to be nationwide in scope, and also filed its own charge alleging age discrimination.

The District Court refused to order the production of pedigree information, holding that it was not “relevant” to the charge at issue because that information (or even interviews of the employees on the list provided by McLane) could not shed light on whether an evaluation represented a tool of discrimination. EEOC v. McLane Company, Inc., No. 12-CV-02469 (D. Ariz. Nov. 19, 2012) (See our blog post of the District Court’s decision here.)

On October 27, 2015, the U.S. Court of Appeal for the Ninth Circuit reviewed the District Court’s decision de novo and held that the District Court had erred in finding the pedigree information irrelevant to the EEOC’s investigation. EEOC v. McLane Company, Inc., Case No. 13-15126, 2015 U.S. App. LEXIS 187702 (9th Cir. Oct. 27, 2015). (See our blog post of the Ninth Circuit’s decision here.)

The Supreme Court granted certiorari to resolve the disagreement among the courts of appeals regarding the appropriate scope of review on appeal. The posture of the appeal was somewhat unusual because, after the grant of certiorari, the EEOC and McLane both agreed that the District Court’s decision should be reviewed for abuse of discretion, although the EEOC argued that the Ninth Circuit’s decision should stand as a matter of law. The Supreme Court therefore appointed an amicus curiae to defend the Ninth Circuit’s use of de novo review.

The Supreme Court’s Decision

The Supreme Court began its analysis by noting that in the absence of explicit statutory command, the proper scope of appellate review is based on two factors: (1) the history of appellate practice; and (2) whether one judicial actor is better positioned than another to decide the issue in question.

Regarding the first factor, the Supreme Court noted that abuse-of-discretion review was the longstanding practice of the courts of appeals when reviewing a decision to enforce or quash an administrative subpoena. In particular, the Supreme Court noted that Title VII had conferred on the EEOC the same subpoena authority that the National Labor Relations Act had conferred on the National Labor Relations Board (“NLRB”), and decisions of district court to enforce or quash an NLRB subpoena were reviewed for abuse of discretion.

Regarding the second factor, the Supreme Court held that the decision to enforce or quash an EEOC subpoena is case-specific, and one that does not depend on a neat set of legal rules. Rather, a district court addressing such issues must apply broad standards to “multifarious, fleeting, special, narrow facts that utterly resist generalization.” McLane Co. v. EEOC, 2017 U.S. LEXIS 2327, at *14 (U.S. 2017) (quoting Pierce v. Underwood, 487 U. S. 552, 561-62 (1988)). In particular, in order to determine whether evidence is relevant, the district court has to evaluate the relationship between the particular materials sought and the particular matter under investigation. These types of fact-intensive considerations are more appropriately done by the district courts rather than the courts of appeals.

The Amicus argued that the district court’s primary role is to test the legal sufficiency of the subpoena, which does not require the exercise of discretion. The Supreme Court held that this view of the abuse-of-discretion standard was too narrow. The abuse-of-discretion standard is not only applicable where a decision-maker has a broad range of choices as to what to decide, but also extends to situations where it is appropriate to give a district court’s decision an unusual amount of insulation from appellate revision for functional reasons. Those functional considerations weighed in favor of the abuse-of-discretion standard rather than a de novo standard of review. Because the Ninth Circuit did not apply that standard on appeal, the Supreme Court remanded the case to the Ninth Circuit for further proceedings.

Implications For Employers

The McLane case is important for employers because it clarifies the standard of review that is applied to the review of district court decisions enforcing or quashing EEOC subpoenas. Although the Supreme Court adopted the more “hands off” abuse-of-discretion standard, thus giving even more weight to the district court’s judgment, it did so because it identified the fact-intensive nature of these judgment calls, including important decisions about how difficult it would be for the employer to produce the requested information weighed against the need for that information, and the relationship between the particular materials sought and the particular matter under investigation.

At the very least, this language shows that the EEOC does not get to automatically presume relevance of its administrative subpoenas at the outset, as the EEOC sometimes likes to argue. Rather, employers should be able to cite to language in the Supreme Court’s opinion to reinforce the fact that the district court must give serious consideration to issues of relevancy and burden (also whether the subpoena is “too indefinite” or for an “illegitimate purpose”) when deciding whether to enforce an EEOC subpoena.

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

 

supreme court sealBy Christopher M. Cascino and Gerald L. Maatman, Jr.

Seyfarth Synopsis:  A bankruptcy court overseeing an employer’s Chapter 11 bankruptcy proceeding allowed the employer to pay certain unsecured creditors before paying Worker Adjustment And Retraining Notification Act (“WARN”) creditors – workers who had sued the company – monies owed pursuant to a judgment, even though the bulk of the WARN monies owed were for back wages that hold priority over other unsecured claims under the Bankruptcy Code.  The bankruptcy court allowed the employer to pay the other unsecured creditors pursuant to a settlement agreement between the other unsecured creditors, the secured creditors, and the employer because, according to the bankruptcy court, the other unsecured creditors would not receive any monies absent the settlement, while the WARN creditors would not recover any compensation under or absent the settlement.  Both the district court and U.S. Court Of Appeals For The Third Circuit agreed with the bankruptcy court. In Czyzewski v. Jevic Holding Corp., No. 15-649, 2017 U.S. LEXIS 2024 (U.S. Mar. 22, 2017), the U.S. Supreme Court reversed, finding that the bankruptcy court’s conclusion that the WARN plaintiffs could not recover was questionable and, more significantly, that the bankruptcy court could not alter the Bankruptcy Code’s distribution scheme at the expense of the WARN creditors absent their consent.

Employers undergoing Chapter 11 bankruptcy and WARN litigation should take note that unpaid wage claims will take priority over the claims of other unsecured creditors absent the consent of WARN creditors.

Case Background

Sun Capital Partners (“Sun”), a private equity firm, purchased Jevic Transportation Corp. (“Jevic”), an employer, in a leveraged buyout using monies borrowed from third-party CIT Group (“CIT”).  In the buyout, both Sun and CIT used Jevic’s stock as collateral to finance the purchase.

Two years after the buyout, Jevic declared bankruptcy under Chapter 11.  Immediately prior to filing for bankruptcy, Jevic, without the notice required under WARN, told its employees that it was terminating their employment.  During the bankruptcy, these employees sued, and the bankruptcy court entered a $12.4 million judgment in their favor, making them creditors of Jevic.  The bankruptcy court determined that $8.3 million of this $12.4 million was owed for priority wage claims.  While the WARN creditors argued that Sun was also liable for this judgment as a joint employer with Jevic, the bankruptcy court ultimately ruled against them, finding that Sun was not their employer.

Also during the bankruptcy, other unsecured creditors sued Sun and CIT, arguing that they were the beneficiaries of preferential transfers of Jevic’s assets.  While this lawsuit was pending, Jevic’s assets were depleted to $1.7 million in cash, subject to a lien by Sun, and the preferential transfer lawsuit.

Sun, CIT, Jevic, and the other unsecured creditors decided to settle the fraudulent transfer lawsuit.  At the time the case was settled, the WARN creditors’ joint employer case was still pending, so Sun insisted that any settlement could not include a payment to the WARN creditors or their counsel, as Sun feared the WARN creditors’ counsel would use such payments to fund litigation against Sun.  Under the settlement agreement, CIT agreed to pay $2 million to cover the legal fees and administrative expenses of the other unsecured creditors, while giving Jevic’s remaining $1.7 million to pay taxes, administrative expenses, and pro rata distributions to the other unsecured creditors.  Also pursuant to the settlement, Jevic agreed to dismiss its Chapter 11 bankruptcy case.

Sun, CIT, Jevic, and the unsecured creditors petitioned the bankruptcy court to approve the settlement and dismiss the Chapter 11 case.  The WARN creditors opposed, arguing that the settlement violated the normal priority rules by giving other unsecured creditors priority over the WARN creditors.

While the bankruptcy court agreed that the settlement violated standard priority rules, it found that, because it was dismissing the Chapter 11 case rather than approving a Chapter 11 plan, it did not have to follow the priority rules contained in Chapter 11.  It found authority to do so in Chapter 11’s dismissal provision, § 349(b)(1), which provides that, with dismissal, parties are restored to the status quo ante unless a bankruptcy judge, “for cause, orders otherwise.”  Further, it found that, regardless of the settlement, the WARN creditors would not receive any distributions, while the settlement left the other unsecured creditors in a better position than they would be absent the settlement.  Both the district court and Third Circuit agreed.  The WARN creditors sought certiorari, which the Supreme Court granted.

The Court’s Decision

In a March 22, 2017 opinion authored by Justice Breyer, the Supreme Court reversed.  The Supreme Court began its analysis by considering Jevic’s argument that the WARN creditors lacked standing because they would not have recovered anything if the settlement was not approved.  The Supreme Court found this argument unpersuasive because it relied on two questionable propositions: first, that without violation of the ordinary priority rules, there would be no settlement and, second, that the fraudulent conveyance lawsuit had no value.  2017 U.S. LEXIS 2024, at *19.  With respect to the  first argument, the Supreme Court found it unpersuasive given that Sun ultimately won on the joint employer issue.  Id. at *19-20.  With respect to the second, the Supreme Court found the assumption that the fraudulent conveyance lawsuit had no value questionable in light of the fact it settled for $3.7 million.  Id. at *20.  The Supreme Court thus concluded that the WARN creditors had something to lose if the settlement was approved, and therefore had standing to challenge it.  Id. at *21.

The Supreme Court then turned to the question of whether a bankruptcy court can dismiss a Chapter 11 plan in a way that does not follow the ordinary priority rules without the affected creditors’ consent.  Id.  It decided that it cannot for several reasons.

First, the Supreme Court observed that the distribution scheme contained in the Bankruptcy Code is “fundamental to the Bankruptcy Code’s operation,” and that one would expect more than “statutory silence” to authorize departures from the scheme.  Id. at *22-23.  Second, the Supreme Court concluded that Chapter 11 § 349(b)(1), in providing that the parties are restored to the status quo ante in a dismissal unless a bankruptcy judge, “for cause, orders otherwise,” only allows a bankruptcy judge to “make appropriate orders to protect rights acquired in reliance on the bankruptcy case,” which approval of the settlement did not do.  Id. at *24-25.  Finally, the court concluded that the consequences of allowing a departure from the normal distribution scheme were “potentially serious,” including “changing the bargaining power of different classes of creditors” and “risks of collusion.”  Id. at *30-31.

For these reasons, the Supreme Court reversed the bankruptcy court’s approval of a settlement that, as part of the dismissal of a Chapter 11 case, allowed payment to general unsecured creditors while skipping the higher priority claims of the WARN creditors.

Implications For Employers

Financially distressed employers who are the subject of potential WARN litigation should be aware that, as a result of this decision, they will not be able to pay the claims of general unsecured creditors during bankruptcy absent the consent of WARN creditors.  The case has special implications for employers who own distressed employers, as was the case with Sun in Czyzewski, who want to avoid funding litigation against themselves under a joint employer theory.

#16-3836 2017 WCAR Front Cover for WordBy Lorie Almon, Gerald L. Maatman, Jr., and Ian Morrison

Seyfarth’s Annual Workplace Class Action Report Webinar is next Tuesday, February 21, 2017. Click here to register and attend. It’s free!

As we face a new year, Seyfarth is pleased to offer strategic guidance through our 13th Annual Workplace Class Action Litigation Report. 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 2016 decisions and emerging trends, please join us for our annual webinar. The Report’s author, Gerald L. Maatman, Jr., along with Lorie Almon, chair of our wage & hour group, and Ian Morrison, co-chair of our ERISA class action group, will cover a changed national landscape in workplace class action litigation.   In our workplace class action webinar, highlights from the Report will outline a number of key trends for employers in 2017, including:

  • The implications and fall-out from the Supreme Court’s key decisions on complex employment litigation and class action issues of 2016, and discussion of the cases accepted for review that are posed for rulings in 2017.
  • Lessons to be learned from the monetary value of the top employment-related class action settlements and why they declined significantly in 2016 after they reached all-time highs in 2014 and 2015.
  • The background on why more favorable class certification rulings for the plaintiffs’ bar were issued in 2016 than in past years.
  • How the private plaintiffs’ bar is likely to “fill the void” after the Trump inauguration and increase the number of wage & hour lawsuit filings in 2017, following case filing statistics reflecting that wage & hour litigation filings decreased over the past year for the first time in a decade.
  • Why there were more conditional certification and decertification decisions in the wage & hour space than in any other area of workplace class action litigation.
  • The dynamics behind the U.S. Department of Labor and Equal Employment Opportunity Commission’s continued aggressive litigation approaches in 2016 and what is in store for government enforcement litigation under the Trump Administration.

The date and time of the webinar is February 21, 2017:

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 Ian Morrison

 

supreme-court-546279_960_720On Tuesday, February 1, 2017, President Trump announced the selection of Judge Neil Gorsuch to the U.S. Supreme Court. Judge Gorsuch sits on the U.S. Court of Appeal for the 10th Circuit. If confirmed by the Senate, Judge Gorsuch would fill the vacancy to replace Justice Scalia.

We’ve analyzed Judge Gorsuch’s rulings and his approach to workplace issues, and what this may mean for employers.

In this Supreme Court video update, Jerry Maatman discusses Judge Gorsuch’s background and legal philosophy, his prior rulings, and the ways in which he is similar to Justice Scalia.

Order the Workplace Class Action Report here.

Sign up for the Workplace Class Action Webinar here.

Sign up for email updates of new WCAB posts here.

Follow our twitter for blog updates here.

 

#16-3836 2017 WCAR Front Cover for WordBy Lorie Almon, Gerald L. Maatman, Jr., and Ian Morrison

Back by popular demand, our Annual Workplace Class Action Litigation Report Webinar is on Tuesday, February 21, 2017. Click here to register and attend. It’s free!

As we face a new year, Seyfarth is pleased to offer strategic guidance through our 13th Annual Workplace Class Action Litigation Report. 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 2016 decisions and emerging trends, please join us for our annual webinar. The Report’s author, Gerald L. Maatman, Jr., along with Lorie Almon, chair of our wage & hour group, and Ian Morrison, co-chair of our ERISA class action group, will cover a changed national landscape in workplace class action litigation.   In our workplace class action webinar, highlights from the Report will outline a number of key trends for employers in 2017, including:

  • The implications and fall-out from the Supreme Court’s key decisions on complex employment litigation and class action issues of 2016, and discussion of the cases accepted for review that are posed for rulings in 2017.
  • Lessons to be learned from the monetary value of the top employment-related class action settlements and why they declined significantly in 2016 after they reached all-time highs in 2014 and 2015.
  • The background on why more favorable class certification rulings for the plaintiffs’ bar were issued in 2016 than in past years.
  • How the private plaintiffs’ bar is likely to “fill the void” after the Trump inauguration and increase the number of wage & hour lawsuit filings in 2017, following case filing statistics reflecting that wage & hour litigation filings decreased over the past year for the first time in a decade.
  • Why there were more conditional certification and decertification decisions in the wage & hour space than in any other area of workplace class action litigation.
  • The dynamics behind the U.S. Department of Labor and Equal Employment Opportunity Commission’s continued aggressive litigation approaches in 2016 and what is in store for government enforcement litigation under the Trump Administration.

The date and time of the webinar is February 21, 2017:

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 Ian Morrison