By: Mark Casciari

Seyfarth Synopsis:  On March 20, 2019, in Frank, et al. v. Gaos, No. 17-961, 2019 WL 1264582 (U.S. Mar. 20, 2019), the U.S. Supreme Court held that the Article III standing preconditions to federal court litigation, as described in Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016), will not be undermined. The ruling is important for any corporate counsel involved in defending class actions and in negotiating the resolution of such litigation.

We previously blogged on the supplemental briefing development before the Supreme Court in  Frank v. Gaos, No. 17-961,  and now we can report on the Supreme Court’s decision.  Commentators had expressed the view that the case would provide the Supreme Court with an opportunity to determine whether cy pres provisions in settlement are appropriate. The Supreme Court’s ruling did not go that far.

The Supreme Court’s Decision

In Frank v. Gaos, the Supreme Court has affirmed Spokeo by remanding the case to the U.S. Court of Appeals for the Ninth Circuit without considering whether a class settlement that provides cy pres payments but no money to absent class members is “fair, reasonable, and adequate” under Rule 23(e)(2).  The Supreme Court made its remand ruling in an unusual per curiam decision.  The Supreme Court reiterated, again, that a federal statutory violation alone does not equate to Article III standing.  It remanded because of “a wide variety of legal and factual issues not addressed in the merits briefing before us or at oral argument.” Id. at *3.  The Supreme Court opined that Article III standing turns on “whether any named plaintiff has alleged [statutory] violations that are sufficiently concrete and particularized to support standing.”  Id.

The stakes on remand are high, of course — a lack of standing means no day at all in federal court.

The Implications of the Supreme Court’s Decision

There are a number of lessons to be learned from the Frank v. Gaos decision:

  • Litigants should expect federal district courts to conduct an exacting analysis of Article III standing where the allegations in a complaint do not obviously allege concrete monetary damages. Since the existence, or not, of concrete injury may raise “a wide variety of legal and factual issues,” litigants should expect federal district courts to conduct early evidentiary hearings where the complaint allegations appear to raise only technical statutory violations.
  • Litigants also should expect more lawsuits to be commenced in state court if federal court Article III standing appears weak. Many states do not have constitutions with the same Article III standing precondition to litigation that appears in the U.S. Constitution.  Where a claim arises under only federal law, such as breach of fiduciary duty litigation under 29 U.S.C. § 1132(a)(3), defendants should pay much more attention to Spokeo.
  • Federal agency officials may be under more pressure to vindicate federal statutory rights where Spokeo issues appear in the complaints.
  • Lastly, the Supreme Court’s ruling sends a signal to the lower federal courts that Spokeo provides a very real way for the courts to opt out of federal court litigation. Declining jurisdiction may be preferable to messy litigation that often, these days, present strong partisan political controversies with no easy resolution.

It thus makes eminent sense for litigants to consider, again, what Spokeo held — a plaintiff seeking to invoke federal jurisdiction must show:  (1) an injury in fact (2) caused by the defendant’s conduct that is (3) redressable by a favorable federal court decision.

By Gerald L. Maatman, Jr. and Michael L. DeMarino

Seyfarth Synopsis: To take an immediate appeal from a federal district court’s order granting or denying class certification, a party must first seek permission from the applicable court of appeals “within 14 days after the order is entered.” Fed. Rule Civ. Pro. 23(f). In Nutraceutical Corp. v. Lambert, No. 17-1094, 2019 WL 920828, at *4 (U.S. Feb. 26, 2019), the U.S. Supreme Court addressed the question of whether a court of appeals may equitably toll that deadline when an opposing party objects that the appeal is untimely. Because Rule 23(f)s’ deadline was meant to be rigorously enforced, the Supreme Court concluded that Rule 23(f) is not subject to equitable tolling – even where  good cause for equitable tolling might otherwise exist. The Supreme Court’s ruling in Lambert is therefore a “must read” for all corporate counsel involved in workplace class action litigation.

Background To The Case

The facts in Nutraceutical Corp. v. Lambert, No. 17-1094, 2019 WL 920828, at *1 (U.S. Feb. 26, 2019), are straightforward. Troy Lambert sued Nutraceutical Corporation in federal court and was initially successful in obtaining class certification. Id. The District Court subsequently revisited its order and later decertified the class. Id. At that point, Lambert had 14 days under Rule 23(f) to ask the Ninth Circuit for permission to appeal the decertification order. Id.

Instead, Lambert filed a motion for reconsideration, and did so eight days after Rule 23(f)’s 14-day window, but within the timeframe ordered by the District Court. Id. The District Court ultimately denied Lambert’s motion for reconsideration, and within 14 days of that decision, Lambert petitioned the Ninth Circuit for permission to appeal the decertification order. Id. Nutraceutical argued that Lambert’s petition was untimely because more than four months had elapses since the District Court’s order decertifying the class, far more than the 14 days that Rule 23(f) allows. Id.

Nevertheless, the Ninth Circuit  deemed Lambert’s petition timely, reasoning that Rule 23(f) is non–jurisdictional and subject to equitable tolling. Under the circumstances, the Ninth Circuit concluded that Lambert acted diligently and tolling was warranted. On the merits, the Ninth Circuit reversed the District Court’s decertification order. Id.

Nutraceutical thereafter appealed and the U.S. Supreme Court granted certiorari.  Justice Sotomayor, writing for a unanimous Supreme Court, reversed and remanded on February 26, 2019. Id.

The SCOTUS Decision

The Supreme Court agreed with the Ninth Circuit that Rule 23(f)’s time limitation is non–jurisdictional because it is found in a procedural rule, not a statute. Id. at *2. Nevertheless, the Supreme Court found that Rule 23(f) is not subject to equitable tolling. Id. The Supreme Court reasoned that although a non–jurisdictional rule is subject to waiver and forfeiture, that does not mean the rule is not mandatory or that it is therefore subject to equitable tolling. Id.

“Whether a rule precludes equitable tolling,” explained the Supreme Court,  “turns not on its jurisdictional character but rather on whether the text of the rule leaves room for such flexibility.” Id. at *3. Because Rule 23(f) conditions an appeal on filing a petition within 14 days, and because Appellate Rule 26(b) expressly states that a court of appeals “may not extend the time to file . . . a petition for permission to appeal,” the Supreme Court concluded that there is “clear intent to compel rigorous enforcement of Rule 23(f )’s deadline, even where good cause for equitable tolling might otherwise exist.” Id. at *4.

As evidence that Rule 23(f) is amenable to tolling, Lambert argued that every court of appeals to consider the issue has accepted Rule 23(f) petitions filed within 14 days of the resolution of a motion for reconsideration that was itself filed within 14 days of the original order. Id. at *5. Although Lambert’s reconsideration motion was not filed within 14 days of the certification ruling, Lambert argued there was no reason to relax the 14 day limit in one situation but not the other. Id. The Supreme Court rejected this argument. It explained that a motion for reconsideration filed within the window to appeal “does not toll anything: it renders an otherwise final decision . . . not final for purposes of appeal.” Id. As a result, the Supreme Court declined to address the effect of a motion for reconsideration filed within the 14-day window or whether Lambert’s  motion would be timely if that had occurred. Id. at *5 fn. 7.

Lambert also argued that the District Court’s decision was itself an order granting or denying class action certification under Rule 23(f). Id. at *6. Because the Ninth Circuit did not rule on these grounds, the Supreme Court declined to address these arguments. Id. Instead, the Supreme Court left open the possibility for the Ninth Circuit to address these issues on remand.

At the end of the day, the Supreme Court explained that the “relevant Rules of Civil and Appellate Procedure clearly foreclose the flexible tolling approach on which the Court of Appeals relied to deem Lambert’s petition timely.” Id. Hence, the Supreme Court reversed and remanded.

Implication For Employers

The takeaway from Lambert is that a court of appeals cannot alter the time for a party to file a petition for permission to appeal under Rule 23(f) – even if good cause might otherwise exist. Employers who wish to appeal an order granting class certification must be sure to do so within the 14-day period allowed by Rule 23(f). Although many courts of appeal have held that a motion for reconsideration filed within fourteen days of the order granting or denying class certification can toll a Rule 23(f) deadline, the Supreme Court’s opinion is clear that this nomenclature is not correct. Instead of tolling the Rule 23(f) deadline, a motion for reconsideration simply renders a class certification decision not final for purposes of appeal. The Supreme Court’s reluctance to address the effect of a motion for reconsideration filed within the 14-day window should give employers some pause before relying exclusively on a motion for reconsideration. The safest course is to file a petition for permission to appeal within the 14-day time period under Rule 23(f).

Seyfarth Synopsis: The impact of the #MeToo Movement was the fifth major class action development of 2018, as well as the newest trend in our 15th Annual Workplace Class Action Litigation Report (“WCAR”).  By way of its groundbreaking emergence on social media, the #MeToo Movement profoundly impacted the workplace and made its way into the class action arena.  Today, we conclude our exclusive video series by posting WCAR author Jerry Maatman’s analysis of this trend from Seyfarth Shaw’s “Top Trends In Workplace Class Action Litigation” book launch event held on January 30, 2019.  Click the link below to see and hear Jerry discuss the #MeToo Movement’s effect on complex litigation in 2018!

Seyfarth Synopsis: Of the five major class action developments in 2018, the decline in class action settlement numbers may have been most the striking shift.  In fact, when compared to the 2017 numbers, the value of the top class action settlements in 2018 decreased by over $1 billion.  In today’s blog, our readers can see and hear Workplace Class Action Report (“WCAR”) author Jerry Maatman outline what he called “a very significant marker of class action litigation in 2018.”  Click the link below to watch and hear Jerry’s presentation from Seyfarth Shaw’s “Top Trends In Workplace Class Action Litigation” book launch event!

Seyfarth Synopsis: Governmental enforcement litigation increased in 2018 despite the U.S. Equal Employment Opportunity Commission’s (“EEOC”) first full year under the presumably business-friendly Trump Administration.  However, while the EEOC’s filing numbers went up, the value of the top 10 governmental settlements dropped by more than $350 million.  As a result, these developments represent the third trend of the 15th Annual Workplace Class Action Litigation Report (“WCAR”).  In today’s post, our blog readers to see and hear WCAR author Jerry Maatman’s presentation from Seyfarth Shaw’s recent “Top Trends In Workplace Class Action Litigation” book launch event.  Watch Jerry discuss the government’s 2018 enforcement litigation activity in the link below!

Seyfarth Synopsis: Last week, we posted the first video in a series of clips from Seyfarth Shaw’s “Top Trends In Workplace Class Action Litigation” book launch event.  Specifically, this set of exclusive videos allows our readers to see and hear Workplace Class Action Litigation Report author Jerry Maatman’s perspective on each major class action trend from 2018.  Today’s clip focuses on class certification rulings, and identifies the areas of litigation in which the Plaintiffs’ bar experienced noticeable success in 2018.  Watch and hear Jerry’s analysis in the link below!

Seyfarth Synopsis:  On January 30, 2019, Seyfarth Shaw hosted “Top Trends In Workplace Class Action Litigation”, an event designed to officially launch the firm’s 15th Annual Workplace Class Action Litigation Report (“WCAR”).  The event’s special guest was Law360 Senior Employment Report Braden Campbell, and also featured an exclusive presentation by WCAR author Jerry Maatman.  Over the next week, we will be posting a series of video clips allowing our blog readers to see Jerry’s analysis of the five most influential class action developments in 2018.  Click the link below to watch Jerry discuss highlights from the U.S. Supreme Court in 2018!

By: Gerald L. Maatman, Jr., and Christina M. Janice

Seyfarth Synopsis: On February 4, 2019, in Woods-Early v. Corning Corp., Case No. 18-CV-6162, a race discrimination class action, Judge Frank P. Geraci, Jr. of the U.S. District Court for the Western District of New York refused to strike class allegations of discrimination in promotions on the basis of race and color in violation of Title VII and the New York State Human Rights Law.  Although Plaintiff’s amended complaint failed to identify a single promotion she was denied on the basis of race and color, the Court found that allegations of discriminatory decision-making by a small group of upper-level management exercising unfettered discretion over an employer’s performance review process was sufficient to survive a motion to dismiss the class claims under Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011).  

Background

In 2018 an employee of Corning, a multinational technology company specializing in designing and manufacturing materials for industrial and scientific applications, brought a class action alleging that the employer discriminated against her on the basis of her color and race (Black, African-American) in violation of Title VII and the New York State Human Rights Law. Plaintiff asserted that by utilizing a performance evaluation tool and process that disadvantaged Black, African-American employees in obtaining access to promotion opportunities, the employer violated the law.  Plaintiff alleged that the Company used an evaluation tool that allowed supervisors, without sufficient training, to exercise unfettered discretion in evaluating employee performance on the basis of ill-defined “Corning Values,” and that these ratings then were advanced to a group of high-level executives called the “brain trust,” who themselves had unfettered discretion to change the ratings.

The discriminatory result alleged by Plaintiff was that African-American employees routinely received lower ratings than their non-minority counterparts, and because of this they were unable to achieve the “Emerging Talent” internal designation and higher salary bands required by Corning to access training and other executive networking opportunities necessary to obtain promotional opportunities.  Plaintiff did not, however, identify any single promotional opportunity she was denied.

Defendant filed a motion to dismiss the class allegations as well as any allegations of discrimination against Plaintiff in promotions.  Relying on Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011), the Company argued that discrimination claims based on the exercise of managerial discretion in the performance evaluation process lack sufficient commonality to proceed in litigation.  Moreover, Defendant argued that allegations that its executive “brain trust” controlled the performance evaluation process, and had the unfettered discretion to change performance ratings and determine who is designated “Emerging Talent,” were merely “conclusory and implausible.”  It further argued that Plaintiff’s claims should fail because she could not link any discriminatory, low performance ratings to an adverse action against her.

The Court’s Ruling

Observing that parties often mistake the import of Wal-Mart as requiring that sustainable class allegations present common questions, the Court opined that the proper inquiry in scrutinizing class allegations is whether the class mechanism is appropriate to find common answers to the allegations.  Noting that the Supreme Court in Wal-Mart emphasized that in Title VII claims implicating many employment decisions there must be a “glue” holding the alleged reasons for the decisions together, the Court stated that this “glue” can come in different forms, such as a biased testing procedure or general policy of discrimination manifested in promotions practices.

The Court followed the lead of the Fourth and Seventh Circuits respectively in Scott v. Family Dollar Stores, Inc., 733 F.3d 105 (4th Cir. 2013), and Chicago Teachers Union, Local No. 1 v. Bd. Of Educ. Of Chicago, 797 F.3d  426 (7th Cit. 2015), each of which found that the commonality required to sustain class treatment is satisfied when discretion is exercised uniformly by higher-level management.  As a result, the Court ruled that allegations of the unfettered discretion of the Company’s “brain trust” — to determine employee performance ratings, the incentive of this singular and cohesive group to manipulate performance ratings to impact the individuals designated as “Emerging Talent,” and the effect of the exercise of that discretion to bar African-American employees from advancing to higher pay bands and the access to executives and training needed for promotions — were sufficient to survive the motion to dismiss.

The Court also rejected Defendant’s challenge that although Plaintiff alleged that she suffered discriminatorily low performance ratings, her claim for discrimination in promotions should be dismissed for failing to allege any promotional opportunity for which she applied and was qualified, and that she had been denied.  The Court rejected the contention that Plaintiff must allege the adverse action of a specific promotion sought and denied in order to survive a motion to dismiss a claim of discrimination in promotions.  Rather, the Court determined that Plaintiff’s allegations of a discriminatory performance evaluation and rating process, and a link between the alleged discriminatory actions of the Company’s “brain trust” and tangible adverse impacts to African-Americans, including herself, was sufficient for her promotions claims to proceed.

Implications For Employers

This decision is one of a growing body of case law authority interpreting and expanding the contours of class actions maintainable in the aftermath of Wal-Mart.  Over time, employers may expect the plaintiffs’ class action bar to test and refine theories to obtain class certification in “managerial discretion” cases.  To get ahead of this curve, employers should periodically review their performance evaluation processes for disparate impact and other vulnerabilities.  Evaluating performance management programs for well-communicated expectations, detailed and sufficiently objective metrics, disciplined scoring, and standardized supervisor training, also is a proactive step for savvy employers to take to enhance the workplace while reducing risk.

Seyfarth Synopsis: Last week, we were honored to have Braden Campbell, Senior Employment Reporter for Law360, as our guest speaker for Seyfarth Shaw’s “Top Trends In Workplace Class Action Litigation” book launch event.  As the official book launch of our 15th Annual Workplace Class Action Litigation Report, over 1,000 attendees participated in the live event webcast and tuned in to see and listen to Braden’s in-depth analysis.  Specifically, Braden spoke to our viewers about the most influential Supreme Court decisions of 2018, and gave his prediction for the hottest class action topics of 2019.  Today’s post allows anyone who missed the event to see Braden’s entire presentation.  Watch it the link below!

By: Gerald L. Maatman, Jr., Julie G. Yap, and Phillip J. Ebsworth

Seyfarth Synopsis: On January 18, 2019, in Porath v. Logitech, Case No. 18-CV-3091 (N.D. Cal. Jan. 18, 2019), Judge William Alsup of the U.S. District Court for the Northern District of California rejected, for the second time, Defendant’s attempts to allow pre-certification discussions relating to a class-wide settlement. Specifically, the Court upheld its prior order, prohibiting such discussions and denying the appointment of interim counsel to represent the class.  The end result for the parties is that they must spend more time and money litigating this case despite readiness to engage in settlement negotiations. The ruling is an important read for all corporate counsel involved in class action litigation.

Case Background

In May 2018, Plaintiff filed a putative class action alleging that the Defendant falsely and deceptively advertised its Z200 speakers as containing four speakers when two of the speakers did not independently produce sound. On June 13, 2018, Judge Alsup issued an order entitled “Notice and Order Re Putative Class Actions and Factors To Be Evaluated For Any Proposed Class Settlement”— an order Judge Alsup typically issues at the outset of any proposed class action pending before him. That order prohibits any settlement discussions of any class claims prior to class certification. Alternatively, the order provides that if counsel believe settlement discussion should precede class certification, interim class counsel must first be appointed.

In August 2018, counsel for Plaintiff and Defendant moved to appoint interim class counsel and enumerated four reasons why they believed pre-class certification settlement discussions were appropriate, including: (i) Defendant agreed not to seek a discount based on the risk a class would not be certified, (ii) Defendant had already begun revising the advertising at issue, (iii) Defendant was prepared to make purchasers of the product whole, and (iv) the parties were prepared to engage in reasonable and appropriate discovery necessary to resolve the case.

The Court denied the motion. Judge Alsup took issue not only with the limited discovery conducted to ascertain the viability of class claims at that point, but also with what he termed “the clever wording” of the motion, which “offered little of substance” in regards to remedies that would be on the table for the absent class members in any pre-certification settlement discussions. Id. at 5.

After the Ninth Circuit denied Defendant’s request for review, Defendant moved for reconsideration of the order prohibiting discussion of class-wide settlement issues, as well as the order denying appointment of interim class counsel. Specifically, Defendant asserted that Judge Alsup’s order prohibiting pre-certification class-wide settlement violated the parties’ First Amendment rights.

The Decision

Judge Alsup denied Defendant’s motion.  Specifically, Judge Alsup explained that his prohibition on any class-wide settlement discussions protects absent class members because (i) it prevents the imposition of overbroad releases on claims that cannot meet Rule 23 class certification standards; and (ii) it guards against settlements inappropriately discounted based on the risk that a claim will not be certified for class treatment. Citing scholarly commentaries, Judge Alsup opined that procedural hurdles should not require absent class members to accept a “lowball offer to salvage a class recovery.” Id. at 3.

Turning to Defendant’s free speech argument, Judge Alsup noted that his order was viewpoint neutral and simply regulated the time, place and manner of class-wide settlement discussions.  Judge Alsup also emphasized that his order only restrained such discussions until counsel is authorized under Rule 23 to negotiate on behalf of a class; as a result, he explained that no permanent or overly broad ban exists. Additionally, even if a limited restriction existed, Judge Alsup concluded that the interests of the parties are “overwhelmingly outweighed” by the interest of the Court in implementing orderly case management and the interests of absent class members and their rights. Id. at 5-6. As a result, Judge Alsup noted that Defendant had no First Amendment right to obtain a class-wide release from an attorney with no authority to act for the class.

Conclusion

While such limitations on pre-certification settlement discussions are not currently widespread, parties seeking to resolve such disputes without engaging in costly class discovery may find themselves in a difficult situation if other courts adopt Judge Alsup’s approach.  Given that the recent proposed amendments to Rule 23 did not adopt proposals to provide a different standard for settlement classes, parties may see vastly different approaches to class action settlements throughout the federal system.