Seyfarth Synopsis: The second key trend from our 16th Annual Workplace Class Action Litigation Report involves rulings by the U.S. Supreme Court. Over the past few years, the Supreme Court has issued a number of rulings that impacted the prosecution and defense of class actions in significant ways. Today, we provide readers with an outline of the most important workplace rulings issued by the Supreme Court in 2019, as well as which upcoming decisions employers should watch for in 2020. Read the full breakdown below!
The Impact Of U.S. Supreme Court Rulings
Over the past decade, the U.S. Supreme Court – led by Chief Justice John Roberts – increasingly has shaped the contours of complex litigation exposures through its rulings on class action and governmental enforcement litigation issues.
Many of these decisions have elucidated the procedural requirements for pursuing employment-related class actions under Rule 23 of the Federal Rules of Civil Procedure. These rulings are very important to success or failure in class action litigation. Outcomes on procedural issues often have an outsized influence on class certification rulings and appeals.
The 2011 decision in Wal-Mart Stores, Inc. v. Dukes and the 2013 decision in Comcast Corp. v. Behrend are the two most significant examples. Those rulings are at the core of class certification issues under Rule 23.
The 2018 ruling in Epic Systems Corp. v. Lewis is another example. It green-lighted a gateway device to block prosecution of class and collective actions in the judicial system and force adjudication of claims on an individual, bi-lateral basis in arbitration. Epic Systems built upon a group of pro-employer, pro-arbitration rulings over the past decade – including AT&T v. Concepcion, Italian Colors v. American Express, and this past year’s ruling in Lamps Plus v. Varela – that allow defendants to manage the risks of class actions through arbitration agreements with class action waivers.
To that end, federal and state courts cited Wal-Mart in 641 rulings in 2019; they cited Comcast in 219 cases in 2019; and they cited Epic Systems in 177 decisions by year’s end.
Given the age of some of the sitting Justices of the Supreme Court, President Trump may have the opportunity to fill additional seats on the Supreme Court in 2020 and beyond, and thereby influence a shift in the ideology of the Supreme Court toward a more conservative and strict constructionist jurisprudence. In turn, this is apt to change legal precedents that shape and define the playing field for workplace class action litigation.
Rulings In 2019
In terms of decisions by the Supreme Court impacting workplace class actions, this past year was no exception. In 2019, the Supreme Court decided six cases – two employment-related cases and four class action cases – that will influence complex employment-related litigation in the coming years.
The employment-related rulings came in two wage & hour collective actions, whereas the class action rulings involved appeal rights, settlement requirements, class arbitration, and removal rights under the Class Action Fairness Act. A rough scorecard of the decisions reflects one distinct plaintiff/worker-side victory, defense-oriented rulings in three cases, and two rulings that may impact all litigants equally.
New Prime, Inc. v. Oliveira, et al., 139 S. Ct. 532 (2019) – Decided on January 15, 2019, this collective action under the Fair Labor Standards Act involved a driver for a trucking company under an agreement that classified him as an independent contractor and contained a mandatory arbitration provision with a class/collective action waiver. Defendant invoked the Federal Arbitration Act (“FAA”), arguing that questions regarding arbitrability should be resolved by the arbitrator. Agreeing that a court should determine whether the FAA’s exclusion in § 1 applies before ordering arbitration, the Supreme Court reasoned that the FAA does not apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Because a “contract of employment” refers to any agreement to perform work, the Supreme Court concluded that Plaintiff’s contract fell within that exception. The Supreme Court opined that at the time of the adoption of the FAA in 1925, the phrase “contract of employment” was not a term of art and did not require a formal employer-employee relationship, as Congress used the term “contracts of employment” broadly.
Nutraceutical Corp. v. Lambert, et al., 139 S. Ct. 710 (2019) – Decided on February 26, 2019, this class action involved allegations that Nutraceutical’s marketing of a dietary supplement violated California consumer protection law. After decertification of the class, Plaintiff had 14 days under Rule 23(f) to ask for permission to appeal the order. Instead, Plaintiff moved for reconsideration more than 14 days later, and the motion was subsequently denied. Fourteen days thereafter, Plaintiff petitioned the Ninth Circuit for permission to appeal the decertification order. The Ninth Circuit held that Rule 23(f)’s deadline should be tolled because Plaintiff had acted diligently and it reversed the decertification order. A unanimous Supreme Court reversed on the basis that Rule 23(f) is “a non-jurisdictional claim-processing rule,” which is not subject to equitable tolling. The Supreme Court concluded that the Federal Rules of Civil Procedure express a clear intent to compel rigorous enforcement of Rule 23(f)’s deadline, even where good cause for equitable tolling might otherwise exist. As a result, the decision provides bright-line clarity for time limits on Rule 23(f) appeals of class certification orders.
Frank, et al. v. Gaos, 139 S. Ct. 1041 (2019) – Decided on March 20, 2019, this case involved a class action brought against Google claiming violations of the Stored Communications Act (Plaintiffs alleged that when an Internet user conducted a Google search and clicked on a hyperlink listed on the search results, Google transmitted information, including the terms of the search, to the server that hosted the selected webpage). As the Act prohibits a person or entity providing an electronic communication service to the public from knowingly divulging to any person or entity the contents of a communication while in electronic storage by that service, Plaintiffs brought a class action for breach or privacy. The parties negotiated a class-wide settlement that required Google to include disclosures on three of its webpages and to pay $8.5 million, whereby most of the money would be distributed to cy pres recipients (in a class action, cy pres refers to distributing settlement funds not amenable to individual claims or meaningful pro rata distribution to non-profit organizations whose work indirectly benefits class members). The Ninth Circuit affirmed approval of the settlement without addressing standing issues that had been the subject of dispute. On review, the U.S. Supreme Court vacated the order. Although the Supreme Court had granted certiorari to decide whether a class action settlement that provides a cy pres award but no direct relief to class members is fair, reasonable, and adequate for purposes of Rule 23(e)(2), it concluded that there is a substantial open question about whether any named Plaintiff had standing. As a proposed class settlement cannot be approved if the reviewing court lacks jurisdiction over the dispute, and jurisdiction might be lacking if no named Plaintiff had standing, the Supreme Court did not decide the cy pres question. As a result, the decision underscores that standing is always a required element of class certification, either as to the contested claim or settlement.
Lamps Plus, Inc., et al. v. Varela, et al., 139 S. Ct. 1407 (2019) – Decided on April 24, 2019, this case involved a data breach involving approximately 1,300 employees of Defendant. After a fraudulent federal income tax return was filed in the name of Plaintiff, he filed a putative class action on behalf of employees whose information had been compromised. Relying on the arbitration agreement in Plaintiff’s employment contract, Defendant sought to compel arbitration on an individual rather than a class-wide basis. The Ninth Circuit affirmed the rejection of the individual arbitration request, and thereby authorized a class arbitration. Although Supreme Court case law precedents held that a court may not compel class-wide arbitration when an agreement is silent on the availability of such arbitration, the Ninth Circuit concluded that those case law precedents did not apply because Defendant’s agreement was ambiguous, not silent, concerning class arbitration. The Supreme Court reversed. It held that under the Federal Arbitration Act (“FAA”), 9 U.S.C. § 2, an ambiguous agreement cannot provide the necessary contractual basis for concluding that the parties agreed to submit to class arbitration. It reasoned that class arbitration, unlike the individualized arbitration envisioned by the FAA, sacrifices the principal advantage of arbitration (its informality) and makes the process slower, more costly, and more likely to generate procedural problems than final judgment. The Supreme Court held that consent to participate in class arbitration cannot be inferred absent an affirmative contractual basis for concluding that the party agreed to do so. Therefore, contractual silence is not enough and ambiguity does not provide a sufficient basis to infer consent. As a result, the opinion confirms that an employer cannot be coerced into a class arbitration without signing an arbitration agreement with an unambiguous contract provision expressly stating its intent to do so.
Home Depot U.S.A., Inc. v. Jackson, et al., 139 S. Ct. 1743 (2019) – Decided on May 28, 2019, this case involved the interpretation of the Class Action Fairness Act (“CAFA”). Citibank had filed a state court debt collection action, alleging that consumer was liable for charges incurred on a Home Depot credit card. The consumer responded by filing third-party class action claims against Home Depot and another entity, alleging that they had engaged in unlawful referral sales and deceptive and unfair trade practices under state law. Home Depot filed a notice to remove the case pursuant to the CAFA. Finding that controlling precedent barred removal by a third-party counterclaim Defendant, the District Court dismissed the case (which was reversed by the Fourth Circuit). The U.S. Supreme Court affirmed on the basis that the general removal provision at 28 U.S.C. § 1441(a) does not permit removal by a third-party counterclaim Defendant. The Supreme Court opined that § 1453(b) of the CAFA did not alter § 1441(a)’s limitation on who can remove, suggesting that Congress intended to leave that limit in place. As a result, removal under the CAFA is not allowed for third-part counterclaims.
Parker Drilling Management Services, Ltd. v. Newton, et al., 139 S. Ct. 1881 (2019) – Decided on June 10, 2019, this employment class action concerned work on drilling platforms off the California coast where workers received pay for on-duty time, but not time spent on stand-by, during which they could not leave the platform. Plaintiff filed a class action, alleging that California laws required compensation for stand-by time. The platforms were subject to the Outer Continental Shelf Lands Act (“OCSLA”), which provides that all law on the Outer Continental Shelf (“OCS”) is federal law and deems an adjacent state’s laws to be inferior to federal law only to “the extent that they are applicable and not inconsistent with” federal law under 43 U.S.C. 1333(a)(2)(A). A unanimous Supreme Court vacated a decision of the Ninth Circuit in favor of Plaintiff on the grounds that where federal law address the relevant issue, state law is not adopted as surrogate federal law on the OCS. The Supreme Court rejected Plaintiff’s proposed preemption analysis and ruled that federal law is the only law on the OCS and there is no overlapping state and federal jurisdiction. The Supreme Court held that as Plaintiff’s claims were premised on California law requiring payment for all stand-by time, the Fair Labor Standards Act already addressed that issue and provides for a minimum wage.
The decisions in New Prime, Lambert, Frank, Lamps Plus, Jackson, and Parker Drilling are sure to shape and influence workplace class action litigation in a profound manner.
New Prime and Lamps Plus further elucidate arbitration principles, and when coupled with Epic Systems, these decisions may turn out to be one of the most important trio of workplace class action decisions over the last several decades in terms of their ultimate impact on class action litigation dynamics.
Rulings Expected In 2020
Equally important for the coming year, the Supreme Court accepted three additional cases for review in 2019 – that will be decided in 2020 – that also will impact and shape class action litigation and government enforcement lawsuits faced by employers.
All three cases are ERISA class actions.
The Supreme Court undertook oral arguments on two of these cases in 2019; the other case underwent oral argument in early 2020.
Retirement Plans Committee Of IBM v. Jander, et al., No. 18-1165 – Argued on November 6, 2019, this ERISA class action concerns whether and in what circumstances the “more harm than good” pleading standard from Fifth Third Bancorp. v. Dedenhoeffer can be satisfied by general allegations relative to the harm of inevitable disclosure of alleged fraud increases over time. The ultimate ruling by the Supreme Court likely will determine the relative difficulty of prosecuting and defending ERISA class actions based on how 401k plans are impacted by corporate disclosures and the viability of ERISA stock drop cases.
Intel Corp. Investment Policy Committee v. Sulyma, et al., No. 18-1116 – Argued on December 4, 2019, this ERISA class action involves application of the proper statute of limitations and what quantum of information triggers the date on which an employee has knowledge of the breach or violation of the statute. The ultimate decision likely will determine the ease or difficulty that Plaintiffs have in suing over ERISA issues and establish whether workers get three years or six years to file ERISA class actions.
Thole, et al. v. U.S. Bank, N.A., No. 17-1712 – Argued on January 13, 2020, this ERISA class action poses the issue of whether plan participants or beneficiaries may seek injunctive relief against fiduciary misconduct without demonstrating actual or imminent financial loss. The Supreme Court’s ultimate ruling is apt to establish significant guideposts for standing defenses in ERISA class actions and the contours of fiduciary duty class actions against fully funded defined benefit plans..
The Supreme Court is expected to issue decisions in these cases by the end of the 2019/2020 term in June of 2020.
Rulings in these cases will have significance for employers in complying with the ERISA and in defending class action litigation.
Implications For Employers
Each decision outlined above may have significant implications for employers and for the defense of high-stakes class action litigation. As always, we will closely monitor all Supreme Court case developments and report them to our readers. Stay tuned!