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

Seyfarth Synopsis In an opinion laced with frustration over a third appeal in a class action involving attorneys’ fees, the Seventh Circuit ruled that an objector was entitled to recover attorneys’ fees from class counsel’s fee award. “Unless the parties expressly agree otherwise,” the Seventh Circuit explained, “settlement agreements should not be read to bar attorney fees for objectors who have added genuine value.” The Seventh Circuit’s recent ruling in In Re Southwest Airlines Voucher Litigation is a good reminder for companies negotiating class settlements to account for objector fees in settlement agreements up front, or run the risk that an objector will sandbag the settlement by requesting fees later.

The Background Of The Decision

In In Re Southwest Airlines Voucher Litigation, No. 17-3541, 2018 WL 3651028, at *1 (7th Cir. Aug. 2, 2018), the Seventh Circuit addressed the third appeal relating to attorneys’ fees in the settlement of a class action involving Southwest Airline’s cancelled drink vouchers.  In the first appeal, the Seventh Circuit modified class counsel’s fee award because class counsel had failed to disclose a potential conflict of interest. After the appeal, however, class counsel sought a supplemental fee award, along with a 1/5 multiplier, for his time spent appealing – a maneuver the Seventh Circuit called “astonishing.” Id. The district court declined to award the multiplier, but nonetheless awarded class counsel one-third of the requested amount, or roughly $455,294.

Subsequently, an objector, Gregory Markow, sought to vacate the settlement agreement and the supplemental fee award. Markow eventually appealed but then dismissed his appeal in exchange for class counsel’s agreement to take half of the supplemental fee award. The district court approved the new settlement, and Southwest distributed the vouchers and paid class counsel.

Then, in what must have come as a complete surprise to class counsel (and the corporate defendant), Markow sought to recover $80,000 in attorneys’ fees, which were to come out of class counsel’s fee award. The district court denied Markow’s fee request, and Markow appealed that denial.

The Seventh Circuit’s Ruling

In this third appeal, the Seventh Circuit reversed and remanded. The Seventh Circuit noted that the underlying settlement agreements were silent on issue of objector’s fees. In the absence of a settlement agreement that addresses objector fees, the Seventh Circuit explained that it looks to the law. “Objectors who add value to a class settlement may be compensated for their efforts,” explained Circuit Judge David Hamilton, writing for the unanimous panel. Id. at 2. “Unless the parties expressly agree otherwise, settlement agreements should not be read to bar attorney fees for objectors who have added genuine value.” Id.

Relying on the common fund doctrine to fill in the gap left by the parties’ agreements, the Seventh Circuit ultimately concluded that it would be inequitable for Markow’s lawyer to receive nothing despite negotiating, in exchange for dropping the second appeal, a tripling of relief to the class and a significant cut to class counsel’s fees.

Despite its remand, the Seventh Circuit expressed frustration over resolving yet another appeal involving attorneys’ fees. “[W]e expect this case to end, ‘so that the tail can stop wagging the dog,’” it warned. Id. at *4. (citation omitted). The Seventh Circuit determined that it was “difficult to reconcile [class counsel’s] rapacious requests for fees in the district court with our decision in the prior appeal that reduced its already generous fee award as a modest penalty for failing to disclose a potential conflict of interest.” Id.

Implication For Employers

Although objectors are often labeled extortionists by virtue of opportunistic obstacles  they create to securing approval of class-wide settlements, the ruling in In Re Southwest Airlines Voucher Litigation is clear that objectors are entitled to attorneys’ fees when they add value to the class settlement.  Employers navigating class settlements, therefore, should account for objector fees in the settlement agreement. Failure to do so could result in an objector sandbagging the settlement by requesting fees later.

By Gerald L. Maatman, Jr. and Alex W. Karasik

Seyfarth Synopsis: In a lawsuit brought by a plaintiff class action firm alleging that objectors to class action settlements violated both RICO and Illinois state law by filing frivolous objections in order to seek payouts, an Illinois federal court denied in part the Defendant objectors’ motion to dismiss, holding it had subject-matter jurisdiction to hear the dispute and that a claim seeking injunctive relief for the objectors’ unauthorized practice of law could proceed.

In the class action landscape, where serial objectors frequently frustrate the settlement process by requesting payouts in order to withdraw objections, this case is a must-read for employers and class action defense attorneys.

***

Case Background

In Edelson PC v. The Bandas Law Firm PC, No. 16-CV-11057, 2018 U.S. Dist. LEXIS 119305 (N.D. Ill. July 20, 2018), Plaintiff – a well-known class action plaintiffs’ law firm – alleged that Defendants regularly filed frivolous objections to class action settlements in order to leverage lucrative payoffs, and that as class action attorneys, they were forced to agree to the payoffs or else encounter significant delays in securing relief for class members. Plaintiff sued Defendants (who also included non-attorneys that allegedly aided the objector law firms by serving as class objectors) for violations of RICO and Illinois state law claims for abuse of process and the unauthorized practice of law, and further sought a permanent injunction under the All Writs Act. Id. at 2.

To say the least, Plaintiffs’ lawsuit is novel and a broadside attack on objectors.

Previously, on February 6, 2018, the Court granted Defendants’ motion to dismiss in part, and dismissed Plaintiff’s federal RICO claims for failing to allege predicate acts of racketeering. Id. The Court reserved judgment on Plaintiff’s state law claims, however, pending further briefing on whether it had subject-matter jurisdiction to hear them. In response to the Court’s order to show cause, Plaintiff argued that its state law claims were properly before the Court under either supplemental jurisdiction, 28 U.S.C. § 1367, or traditional diversity jurisdiction, 28 U.S.C. § 1332(a). In response, Defendant argued that supplemental jurisdiction was improper because Illinois courts remained open to Plaintiff and the putative class, and, further, that Plaintiff could not meet the $75,000 amount in controversy threshold required to bring the suit in diversity.

The Court’s Decision

The Court held that it had subject-matter jurisdiction to hear Plaintiff’s state-law claims, and granted in part and denied in part Plaintiff’s state law claims. First, the Court addressed Plaintiff’s argument that Illinois state courts were closed to many putative class members, and the Court therefore should retain supplemental jurisdiction to avoid unfair prejudice to the putative class as a whole. Id. at 10. The Court rejected this argument, noting that the Illinois Code of Civil Procedure provides that any plaintiff whose case is dismissed by a federal district court for lack of jurisdiction may refile his case in state court within one year, “whether or not the time limitation for bringing such action expires during the pendency of [the federal case].” Id. at 11. Accordingly, the Court held that the supplemental jurisdiction statute did not support continuing jurisdiction over Plaintiff’s remaining state-law claims.

Next, the Court addressed Plaintiff’s argument that the Court could hear its state-law claims under traditional rules of diversity jurisdiction, which require complete diversity of citizenship and an amount in controversy of more than $75,000. After dismissing several individual Defendants as dispensable parties, Defendants argued that in order for the Court to establish complete diversity, it must dismiss also dismiss any putative class members who are citizens of California or Texas — the states in which remaining the Defendants reside. The Court rejected this argument, noting it was “poorly founded” and that it “is black-letter law that the citizenship of putative class members is irrelevant for diversity purposes.” Id. at 13. After further finding that “there is no serious case to be made that Plaintiff has not put more than $75,000 in dispute,” the Court held that it had subject-matter jurisdiction to hear the merits of Plaintiff’s state law claims.

Turning to the merits of the state law claims, Plaintiff alleged that Defendants committed the common law tort of abuse of process by manipulating the class-action objection process to serve their own ends. Id. Noting that the tort abuse of process is narrow and disfavored by Illinois law, the Court explained that Plaintiff’s alleged injury — having to pay off Defendants to avoid litigating their objection — was insufficient to establish such a claim. As such, the Court dismissed Plaintiff’s abuse of process claim.

Plaintiff’s final claim sought an injunction against two of the Defendant attorneys for the unauthorized practice of law pursuant to the Illinois Attorney Act, alleging that the attorneys were ghostwriting the objections and coordinating sham mediation sessions despite not moving for pro hac vice admission or filing appearances in the case involving Plaintiff’s counsel where Defendants had objected. The Court explained that under the Illinois Attorney Act, other attorneys and law firms have standing to sue for such an injunction “[b]ecause the practice of law by an entity not licensed constitutes an infringement upon the rights of those who are properly licensed.” Id. at 18 (citation omitted). Defendants argued that this claim should have been brought in state court, and additionally argued that Plaintiff’s complaint technically did not argue that one Defendant was an unlicensed attorney. Id. at 18-20. The Court rejected these arguments, holding that federal courts could hear such claims, and that Defendants’ “clumsy attempt at linguistic gymnastics ignores the text of the . . . Illinois Attorney Act.” Id. at 21. Accordingly, the Court held that Plaintiff sufficiently stated a plausible claim for the unauthorized practice of law, and denied Defendants’ motion to dismiss this claim.

The Court concluded its opinion by opining it was “troubled by the fact that until now its decisions appear to leave Plaintiff and those similarly affected without an adequate remedy — and may fail to deter the Defendants from further rent-seeking [, and] that class counsel facing similar demands may be best served by calling the professional objector’s bluff and seeing the objector’s appeal through to its conclusion.” Id. at 22. But leaving a ray of optimism, the Court noted that the U.S. Supreme Court has recently transmitted an amendment of Rule 23 to Congress that, if effectuated, would require district court approval before any objector can withdraw an objection or appeal in exchange for money or other consideration.

Implications For Employers

Serial objectors to class action settlements have long frustrated employers and class action litigators by delaying the settlement certification process, and have especially enraged plaintiff-side class action attorneys who must decide whether to pay off the objectors or incur additional time and costs in fighting the objection. While Plaintiff’s RICO and abuse of process claims have now been dismissed in this case, the survival of the unauthorized practice of law clam is significant in that it could result in the Defendant serial objectors from being enjoined to engage in this practice in Illinois. It may also serve as a deterrent to other “professional objectors.”

As such, employers and class action attorneys should pay close attention to developments in this context, as this case and the U.S. Supreme Court’s potential amendment of Rule 23 will undoubtedly have an impact on the class action settlement objection practice that routinely impacts the cost of litigation.  

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

Seyfarth Synopsis:  In the midst of a legal landscape that is seemingly pro-arbitration, employers should recognize that employees still have a few strategies to oppose arbitration or invalidate an arbitration agreement. The recent ruling of the U.S. District Court for the Northern District of California in Buchanan, et. al. v. Tata Consultancy Services, Ltd., 15-CV-01696 (N.D. Cal. Jul. 23, 2018), is a good reminder for employers that arbitration agreements are still susceptible to challenges like waiver and unconscionability. Employers faced with class actions involving a mix of class members who signed and did not sign arbitration agreements should be careful to preserve their right to enforce the agreements. 

At the same time, this decision in Buchanan is important because it held that a private, individual plaintiff is not entitled to rely on the pattern and practice burden shifting framework articulated in Teams Int’l Bhd. of Teamsters v. U.S., 431 U.S. 324, 360 (1977) – an issue that the Ninth Circuit has not yet addressed.

Background:

In Buchanan, et. al. v. Tata Consultancy Services, Ltd., No. 15-CV-01696 (N.D. Cal. Jul. 23, 2018), four plaintiffs sued Tata Consultancy Services, Ltd. (“TCS”), alleging disparate treatment under Title VII of the Civil Rights Act of 1964. Specifically, plaintiffs claimed that TCS, which is headquartered in India, maintained a pattern and practice of intentional discrimination in its United States workforce by favoring persons who are South Asian or of Indian National Origin. TCS provides consulting and outsourcing services, and plaintiffs claimed that TCS favored individuals who are predominately South Asian when assigning individuals to open client projects. After class certification briefing, the district court certified a class consisting of all individuals “who are not of South Asian race or Indian  nation origin who were employed by [CTS]  . . . and were terminated . . . .” Id. at 6.

After the class was certified, TCS brought a motion to bifurcate the claims of Plaintiff Buchanan from those of other plaintiffs and a motion to compel arbitration. The district court granted both motions.

The Decision

As a threshold matter, the district court held that Plaintiff Buchanan was not entitled to rely on the pattern and practice framework for proving employment discrimination under Int’l Bhd. of Teamsters v. U.S., 431 U.S. 324, 360 (1977). Buchanan was not a member of the class because, unlike the class, he was never employed by TCS. Under the Teamsters framework, the burden shifts to the employer to defeat a prima facie showing of a pattern or practice by demonstrating that the plaintiffs’ proof is either inaccurate or insignificant.

Although the Ninth Circuit has not addressed whether an individual private plaintiff may use the Teamsters framework, the district court held that pattern and practice method of proof is not available to private plaintiffs. “To allow this expansion of Teamsters,” the district court reasoned, “would ‘conflict with the Supreme Court’s oft-repeated holding . . . that ultimate burden of persuading the trier of fact that the defendant intentionally discriminated against plaintiffs remains at all times with the plaintiff.” Buchanan, et. al. v. Tata Consultancy Services, Ltd., at 8. Because Plaintiff Buchanan, as an individual private plaintiff, was subject to a different burden shifting framework than will govern the claims of the class, the district court concluded that bifurcating his claims from those of the class would avoid confusion at trial and support judicial economy.

As to TCS’s motion to compel arbitration, plaintiffs argued that TCS waived its right to demand arbitration and that the arbitration agreement contained impermissible waiver and unconscionable provisions. Addressing plaintiffs’ waiver argument, the district court concluded that although TCS waited until the fourth amended complaint to assert its right to arbitrate, TCS had notified plaintiffs of its intent enforce the agreement as soon as plaintiffs implicated a potential plaintiff to whom the agreement applied. Hence, the district court concluded that plaintiffs were on notice and granting TCS’s motion would not prejudice plaintiffs.

The district court similarly rejected plaintiffs’ contention that the arbitration agreement contained an impermissible prospective waiver of an employee’s federal anti-discrimination rights. The district court ultimately disagreed that Teamsters pattern and practice burden-shifting framework is a substantive right. The district court likewise rejected plaintiffs’ argument that the arbitration agreement was unconscionable because of a “selective[] overlay [of] a pro-Defendant subset of the Federal Rules of Civil Procedure. ” Id. at 14. Plaintiffs challenged the arbitration agreement because it did not provide employees the opportunity to file motions to strike or motions for judgment on the pleadings. The district court, however, concluded that these limitations did not rise to the level of unconscionability. It reasoned that “[m]otions to strike are disfavored . . . . and Motions for judgment on the pleadings are easily recast” into motions for summary judgment. Id.

Implication For Employers:

This case is a valuable reminder for employers with arbitration agreements that it is still best practice to avoid acting inconsistent with the right to arbitration, lest you supply plaintiffs with a waiver argument. Employers facing a class mixed with employees who signed and did not sign arbitration agreements should be careful preserve their right to enforce arbitration agreements. This may include notifying plaintiffs of the existence of the arbitrations agreement and your intent to enforce the agreement as soon as a plaintiff enters the case to whom the agreement is applicable.

 

By Gerald L. Maatman, Jr. and Alex W. Karasik

Seyfarth Synopsis: In an EEOC-initiated systemic lawsuit alleging that a senior living and nursing facility operator violated the Americans With Disabilities Act (“ADA”) by failing to offer employees light duty as a reasonable accommodation and ignoring its obligation to engage in an interactive process, a federal district court in California recently granted in part the employer’s motion to dismiss the claims of eight specifically identified claimants, holding that the EEOC failed to sufficiently allege that these individuals had a disability or could perform essential job functions.

For businesses facing EEOC-initiated litigation relative to disability discrimination, this ruling provides a blueprint for attacking such claims at the pleading stage.

***

Case Background

In EEOC v. Prestige Care, Inc., Case No. 1:17-CV-1299, 2018 LEXIS 119305 (E.D. Cal. July 17, 2018), the EEOC brought a systemic lawsuit on behalf of thirteen identified claimants for violations of the ADA. Prestige manages nursing care facilities and senior assisted living facilities in California, Oregon, Washington, Alaska, Idaho, Montana, Nevada, and Arizona. Id. at *3. The EEOC alleged that Prestige implemented and followed policies that violated the ADA, including: (1) a “100% healed/100% fit for duty” return to work policy; (2) not offering light duty as a reasonable accommodation; and (3) ignoring its obligation to engage in an interactive process. Id. The EEOC argued that these policies did not permit reasonable accommodations for qualified individuals.

In its motion to dismiss, Prestige argued that the EEOC’s complaint was deficient as to ten of the thirteen claimants identified by the EEOC since it failed to allege they had impairments that affected a major life activity, or failed to identify essential job functions. Id. Without such allegations, Prestige argued there were no plausible ADA claims with respect to the ten claimants. In response, the EEOC argued that dismissal was inappropriate because the allegations stated plausible claims, including on behalf of unnamed individuals. Further, the EEOC argued that it would be premature to dismiss without the benefit of discovery as to the specific individuals.

The Court’s Decision

The Court granted Prestige’s motion to dismiss the EEOC’s claims as to the eight claimants while denying Prestige’s motion as to two claimants. The Court first addressed the EEOC’s arguments (1) that no challenge with respect to claimants was appropriate because it was not a proxy for any individual claimant or charging party; (2) Rule 23 does not apply to the Commission’s lawsuits or when a § 706 claim is pursued; and (3) the EEOC is not required to identify each member of the class to recover. Id. at *5. Noting that “none of these positions adequately address the issue at hand,” the Court explained that Prestige did not argue that Rule 23 applied in this case, nor did it attempt to impose any of Rule 23’s requirements on the EEOC. Further, Prestige did not argue that the EEOC must identify each person for whom recovery is sought. Rather, Prestige was simply raising the question of how to review the allegations concerning the persons that the EEOC chose to identify. As such, the Court held that when the EEOC pursues a systemic claim under § 706 and chooses to identify additional persons who have suffered some form of disability discrimination, the allegations must plausibly show that those “additional individuals” are protected by the ADA. Id. at *6.

The Court then addressed the sufficiency of the allegations as to each of the ten identified claimants that were the subjects of the motion to dismiss. In moving to dismiss the claims of eight of the ten claimants, Prestige primarily challenged the allegations by arguing (1) the EEOC did not identify or allege that a major life activity was affected; (2) the essential functions of the job were not identified; and (3) there were no indications that the aggrieved individual could have performed the essential functions of the job with or without accommodation. Id. at *8-11. For several claimants, the Court held that while the EEOC would identify a physical impairment in its complaint, for instance, plantar fasciitis, it failed to adequately identify a major life activity that was substantially affected by the condition (such as walking or standing, for the claimant with plantar fasciitis). Id. at *17. Regarding the EEOC’s failure to plead the essential job functions, by way of example, the Court noted that for a laundry worker claimant with PTSD and anxiety, the EEOC failed to identify any essential functions of the job, and therefore could not show she was qualified. Id. at *22. Accordingly, the Court granted the motion to dismiss eight of ten identified claimants.

In denying the motion to dismiss as to two of the ten claimants, the Court explained that the allegations were sufficient to plausibly show that the claimants were “qualified individual[s] with a disability.” Id. at *18-19. For instance, the Court held that for a claimant who disclosed a nerve condition that was adversely affected by standing for longer than 15 minutes and lifting heavy objects, the EEOC alleged that Prestige still hired him as a cook, and therefore believed that he could perform the essential functions of that position. As such, the Court held that dismissal of this claimant as a class member would be inappropriate. Id. at *19. Accordingly, the Court denied the motion to dismiss two of the ten claimants.

Implications For Employers

This ruling provides an excellent framework for employers in regards to attacking disability discrimination claims where the EEOC identifies multiple claimants. Employers can rely on the Court’s analyses relative to (1) how the EEOC often failed to identify a major life activity that was substantially affected by the physical impairment it identified; and (2) how the EEOC frequently failed to provide any information whatsoever about essential job functions in its pleading.

But despite dismissing eight of the ten claimants, it is noteworthy that the dismissals were without prejudice. Id. at *22-23. The Court held that the EEOC may file an amended complaint that addresses and corrects the deficiencies with respect to these eight alleged claimants. As such, even though the employer emerged largely victorious in this battle, the Court nonetheless afforded the EEOC a second bite of the apple to remedy its largely deficient pleading.

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

 

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

Seyfarth Synopsis: In Pearson v. Target Corp., No. 17-2275, 2018 U.S. App. LEXIS 17337 (7th Cir. June 26, 2018), the U.S. Court of Appeals for the Seventh Circuit took aim at self-serving class settlement objectors and ordered the district court to review whether certain objectors received compensation in exchange for withdrawing objections. While not an employment case, the decision has significant implications for employers involved in class action litigation because it should discourage objectors from delaying class settlement approval by bringing meritless objections solely to receive payment in exchange for withdrawing objections.

Case Background

Nick Pearson brought a consumer protection class action suit in November 2011. Pearson, No. 17-2275, 2018 U.S. App. LEXIS 17337, at *3. The case settled, and the district court approved the settlement on January 22, 2014.  Id. at *3-4.

Theodore Frank, a regular objector to class action settlements that contain “substantial attorneys’ fees but meager benefits for the class,” objected to the settlement on these grounds. Id. at *2. The Seventh Circuit agreed with Frank’s objection and reversed the district court’s decision. Id.

After the case was remanded, the district court approved a new class-wide settlement on August 25, 2016, and dismissed the action without prejudice. Id. at *4. Three objectors subsequently filed objections. Id. All three dismissed their objections before briefing on their objections began. Id. On November 18, 2016, pursuant to a stipulation agreed to by the parties, the district court entered a new order dismissing the class action with prejudice. Id.

Frank who suspected that the three objectors who withdrew their objections received side settlements in exchange for withdrawing their objectionsmoved to intervene and disgorge any side settlements paid to the objectors. Id. at *4-5. The district court struck the motion on the grounds that it lacked jurisdiction because the action had been dismissed with prejudice. Id

Frank then moved to vacate the order dismissing the action with prejudice under Rule 60(b) of the Federal Rules of Civil Procedure.  Id.  The district court denied the motion, and Frank appealed. Id. at *5.

Seventh Circuit’s Decision

The Seventh Circuit began by considering whether Frank was “a party” who could file a Rule 60(b) motion. Id. at *6. It concluded that Frank was a party within the meaning of the rule because he objected to the initial settlement. Id.

The Seventh Circuit next considered whether Frank met his burden under Rule 60(b). Frank argued that the district court should have vacated the dismissal with prejudice and restated the dismissal without prejudice based on Rule 60(b)(1), which allows a judgment to be vacated based on “errors by judicial officers as well as parties,” and Rule 60(b)(6), which allows a judgment to be vacated in “extraordinary circumstances.” Id. at *6.

The Seventh Circuit found that Frank had not met his burden under Rule 60(b)(1) because the dismissal with prejudice was made subject to a stipulation, finding that agreeing to the stipulation was “a strategic decision” that “is enough to support the denial of a Rule 60(b)(1) motion.” Id. at *6-7.

The Seventh Circuit also determined that the district court should have vacated the dismissal with prejudice under Rule 60(b)(6) for two reasons.  First, the Seventh Circuit held that, if a “settlement disappoint[s] expectations,”  especially where there is nothing suggesting that an aspect of a class settlement is fair, courts should vacate under Rule 60(b)(6).  Id. at *9-10.  The Seventh Circuit found those factors present.  Id.

Second, the Seventh Circuit opined that dismissal of a settled class action with prejudice is “inherently problematic” when settlement agreements, like the one at issue, provide that a court will have jurisdiction to determine all matters relating to the settlement agreement. Id. at *11. It found that, by dismissing the action with prejudice, the district court materially altered the settlement agreement, which would have required a new round of notice to absent class members. Id. at *11-12.

Accordingly, the Seventh Circuit reversed the district court’s decision denying Frank’s Rule 60(b) motion and ordered the district court to consider Frank’s disgorgement motion. Id. at *13.

After rendering its decision, the Seventh Circuit noted its concern that “selfish settlements by objectors are a serious concern.” Id. It noted that concern might be alleviated if Congress approves an amendment to Rule 23 that would require district court approval for “any ‘payment or other consideration’ provided for ‘foregoing or withdrawing an objection’ or ‘foregoing, dismissing, or abandoning an appeal.’” Id. at *13-14.

Implications For Employers

Employers who settle class action lawsuits do so in large part to have certainty and finality. Objectors can stand in the way of that certainty in certain circumstances. While this decision will not end intervention by objectors to class action settlements, it is a shot across the bow of self-serving objectors who bring meritless objections solely in order to extract a payout. Accordingly, it should discourage such meritless objections that can stand in the way of certainty and finality. 

 

Dear Readers,

Happy 4th of July from the Workplace Class Action Blog. We will be on break this week for the holiday and will resume posting our insights on breaking workplace class action news and issues next week.

Best wishes to all for a safe and happy Fourth of July holiday. We hope you have a restful day enjoying family, friends, and loved ones. We will be back soon with all new significant workplace class action observations. Thank you and Happy 4th.

Sincerely,

The Workplace Class Action Blog Writers & Editors

 

On June 21, 2018, XpertHR featured Gerald (Jerry) L. Maatman, Jr. of Seyfarth Shaw LLP as a special guest commentator on its popular podcast series for human resources professionals. In this episode, Jerry provides a comprehensive overview of the Supreme Court’s landmark ruling in Lewis v. Epic Systems Corp., and the decision’s implications for employers.

In a closely contested 5-4 decision authored by Justice Neil Gorsuch, the Supreme Court held that employers may require employees to sign class action waivers as a condition of employment, and such contacts are unenforceable under the Federal Arbitration Act. In practice, this means that employees who have signed such agreements are obligated to arbitrate workplace disputes individually, rather than as a class or collective action. It is believed that this ruling may affect an estimated 25 million employment contracts, a number that will only continue to rise.

On XpertHR’s podcast, which is hosted by Legal Editor David Weisenfeld, Jerry answers a myriad of key questions about the impact of this decision for employers. David and Jerry touch on important aspects of the ruling such as Justice Ginsburg’s harsh dissent, potential workarounds by the Plaintiff’s bar, the practicality of arbitration agreements for employers, and more. To listen to the full episode, click HERE.

Implications For Employers

The Epic Systems ruling has the potential to immediately influence workplace relations. In fact, the impact of this case is already being seen in courtrooms around the country, with employers incorporating this stance into their arguments against putative employment class actions. Furthermore, as Jerry states in the podcast, the Supreme Court has issued a “mosaic of arbitration decisions” over the past few years that may expand the scope of this ruling beyond just wage & hour cases.

However, though the reading of this decision is pro-business, it may present new complications for employers. For example, the Plaintiff’s bar may adopt the strategy of filing hundreds of individual arbitration claims, a tactic Jerry describes as “death by 1,000 cuts.” Justice Ginsburg’s vociferous dissent can also be interpreted as a plea for Congressional action, though it is difficult to determine the likelihood and proximity of legislative action.

For a full explanation of this case’s impact on employers and HR personnel, make sure to listen to XpertHR’s podcast!

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

Seyfarth Synopsis: At the start of this week, the U.S. Supreme Court issued its long-awaited decision in China Agritech, Inc. v. Resh, No. 17-432 (U.S. June 11, 2018), which has important implications for employers because it will limit their exposure to successive class actions.  Specifically, the Supreme Court held that, while the individual claims of putative class members are tolled during pending class actions, their class claims are not. 

Case Background

The China Agritech case was the third putative shareholder class action brought against China Agritech alleging fraud and misleading business practices.  The first such action was brought by Theodore Dean on February 11, 2011. On May 3, 2012, the court in Dean denied class certification, and Theodore Dean then settled his individual claim.

On October 4, 2012, a new set of plaintiffs brought the second putative class action, the Smyth action, against China Agritech. The district court again denied class certification, after which the Smyth plaintiffs settled with China Agritech.

On June 30, 2014, Michael Resh filed a third putative class action against China Agritech. China Agritech argued that Resh’s class claims expired on February 3, 2013 under the applicable two-year statute of limitations.  Resh argued that his class claims were tolled during the Dean and Smyth actions under the principles of American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974), in which the Supreme Court held that the filing of a class action tolls the applicable statute of limitations for all putative class members.

The district court found that American Pipe tolling did not apply to class claims, and thus dismissed Resh’s class claims as untimely.  The Ninth Circuit reversed.  To resolve a circuit split, the Supreme Court granted certiorari.

The Supreme Court’s Decision

In an opinion by Justice Ginsburg, the Supreme Court began by considering the rationale behind its decision in American Pipe.  Specifically, the Supreme Court observed that the purpose of American Pipe tolling is to avoid putative class members filing motions to intervene or separate, individual suits to protect their claims in the event class certification was denied.  China Agritech, No. 14-432 at *5-6.  The Supreme Court further noted that the efficiency and economy purposes of Rule 23 would be undermined if putative class members needed to file motions to intervene and individual actions to preserve their individual claims while putative class actions were pending.  Id. at *6-*7.

The Supreme Court observed that Rule 23 favors early resolution of class certification questions, in that it Rule 23 states that class certification should be decided at “‘an early practicable time.’” Id. at *7 (quoting Fed. R. Civ. P. 23(c)).

The Supreme Court also considered the basis for allowing equitable tolling. Specifically, the Supreme Court pointed out that, to receive equitable tolling, plaintiffs must demonstrate that they have “been diligent in the pursuit of their claims.” China Agritech, No. 14-432 at *9. The Supreme Court found that “[a] would-be class representative who commences suit after expiration of the limitation period . . . can hardly qualify as diligent in asserting claims and pursuing relief.” Id.

Finally, the Supreme Court found that the problem with allowing American Pipe tolling to apply to class claims is that “the time for filing successive class suits . . . could be limitless.” Id. at *10. It held that “[e]ndless tolling of a statute of limitations is not a result envisioned by American Pipe.” Id. at *11. Accordingly, the Supreme Court held that “[t]ime to file a class action falls outside the bounds of American Pipe.” Id. at *15.

Implications For Employers

While China Agritech is not an employment case, it nonetheless represents an important win for employers because it limits the ability of employees to bring successive class actions on the same claims. If the Supreme Court had ruled that American Pipe tolling applied to class claims, employers who won on class certification in one case could then face successive putative class actions asserting the same claims for an indefinite period of time. Since the Supreme Court ruled that American Pipe tolling does not apply to class claims, employers can now have the certainty of knowing the date on which particular class claims expire.

By Gerald L. Maatman, Jr. and Alex W. Karasik

Seyfarth Synopsis: A federal district court in Maryland recently denied in part an employer’s motion to dismiss a race discrimination action brought on behalf of African-born security guards by the EEOC, and instead granted the EEOC’s motion to stay so that the Commission could amend its deficient pre-suit letters of determination that were the subject of the employer’s motion to dismiss.

This is an important ruling for employers facing systemic EEOC actions, particularly regarding the strategy to challenge whether the EEOC has satisfied its Title VII pre-suit obligations.

***

Case Background

In EEOC v. MVM, Inc., No. 17-CV-2864, 2018 U.S. Dist. LEXIS 81268 (D. Md. May 14, 2018), the EEOC alleged that MVM subjected a group of African-born employees to national origin discrimination, consisting of disparate treatment, a hostile work environment, and unlawful retaliation. Id. at *1. In October 2013, MVM hired a new project manager to oversee 400 security personnel, approximately half of whom were “African or foreign-born blacks.” Id. at *2. Within weeks of his hire, the project manager allegedly began complaining that there were “too many Africans” on the contract, that he was not comfortable working with foreigners, that he “couldn’t understand their accents.” Id.

During the project manager’s tenure, MVM also allegedly engaged in a variety of negative actions against African and foreign-born black security personnel, including denying them leave, forcing them to work on their scheduled days off, forcing them to work extra hours beyond their scheduled shifts, assigning them to undesirable posts, subjecting them to heightened scrutiny, disciplining them more harshly than called for by its discipline policy, intimidating and threatening them with termination, and denying them union representation so as to facilitate the imposition of discipline, suspensions, and termination without cause. Id. at *2-3.

Nine terminated employees filed charges with the EEOC. After the EEOC investigated the Charging Parties’ complaints, it issued Letters of Determination (“LODs”) on November 3, 2016, finding that there was reasonable cause to believe MVM had violated Title VII by discriminating against the Charging Parties through “unequal, terms, conditions, and privileges of … employment because of … national origin,” and/or had retaliated against the Charging Parties for engaging in protected activity. Id.

Following unsuccessful conciliation, on September 27, 2017, the EEOC brought suit on behalf of the Charging Parties and a group of allegedly aggrieved individuals. As amended, the complaint alleged five counts of violations of Title VII, consisting of: (I) a pattern or practice of discriminatory treatment based on national origin; (II) disparate terms and conditions of employment based on national origin; (III) a hostile work environment based on national origin; (IV) discharge and constructive discharge based on national origin; and (V) unlawful retaliation.

In its motion to dismiss, MVM primarily argued that the amended complaint contained claims of disparate treatment on behalf of a group of aggrieved individuals, including claims of discriminatory termination and constructive discharge, which went beyond the scope of the underlying LODs. MVM also argued: (i) discrimination based on “perceived” national origin was not cognizable; (ii) that certain allegations in the amended complaint were based on incidents that do not rise to the level of “adverse employment actions”; (iii) that the EEOC failed to state a plausible claim for constructive discharge; and (iv) that the EEOC failed to state a plausible claim of retaliation arising from the termination of one employee. Id. at *10. In its motion to stay, the EEOC requested that the Court stay the proceedings for 45 days to afford it an opportunity to amend its LODs and engage in conciliation efforts based on the amended LODs.

The Court’s Decision

The Court granted the EEOC’s motion to stay, and denied most of MVM’s motion to dismiss. First, in addressing the EEOC’s motion to stay, the Court noted that in the absence of a stay, either the Court would have to engage in detailed, fact-based analysis of the adequacy of the LODs, or the EEOC would dismiss and re-file the case. Id. at *14. In support of staying the case, the Court noted that its conclusion was supported by Mach Mining v. EEOC, 135 S. Ct. 645 (2015). Specifically, the Court held that “MVM’s rigid position that the EEOC may have only one opportunity to provide notice of charges through its LOD is inconsistent with … Mach Mining … to allow additional opportunities to provide notice of charges and engage in conciliation, precisely the steps that the EEOC seeks to accomplish through its proposed stay.” Id. at *13. Accordingly, the Court granted the EEOC’s motion to stay.

Next, having granted the motion to stay in order to permit the EEOC to amend the LODs, the Court held that MVM’s request for dismissal of claims that were not specifically identified in the LODs, such as discriminatory termination, was now moot. Id. at *16. Turning to MVM’s motion to dismiss claims alleging discrimination on the basis of “perceived” national origin, the Court likewise denied MVM’s motion, holding that “[t]o conclude otherwise would be to allow discrimination to go unchecked where the perpetrator is too ignorant to understand the difference between individuals from different countries or regions, and to provide causes of action against only those knowledgeable enough to target only those from the specific country against which they harbor discriminatory animus.” Id. at *17, 21. 

The Court next addressed MVM’s motion to dismiss any disparate treatment claims based on allegedly discriminatory actions other than suspension or termination. MVM asserted that any freestanding claims of disparate treatment in other specific matters, such as denying leave to African employees, forcing them to work on their scheduled days off, or assigning them to undesirable posts, necessarily failed because those actions did not constitute adverse employment actions for purposes of Title VII. The EEOC argued that it was making no such discrete claims, but rather, that the various discriminatory acts short of suspension and termination that were referenced in the amended complaint were offered collectively to establish a hostile work environment. Id. at *25. The Court rejected the EEOC’s argument and granted MVM’s motion to dismiss the nation origin disparate treatment claim, noting that hostile work environment, discriminatory termination, and retaliation claims were separately plead in other counts. The Court also denied MVM’s motion to dismiss constructive discharge and retaliation claims, holding that the EEOC plausibly stated claims for both. Accordingly, the Court denied in part and granted in part MVM’s motion to dismiss, and granted the EEOC’s motion to stay.

Implications For Employers

Since the U.S. Supreme Court issued its decision in the Mach Mining case in 2015, whether the EEOC has fulfilled its pre-suit obligations under Title VII has become a major area of focus for employers EEOC lawsuits. Here, although the Court generally acknowledged that the LODs were deficient, it avoided closely scrutinizing these pre-suit letters and allowed the EEOC to amend any deficiencies. Accordingly, while employers should not let one district court’s opinion deter them from challenging whether the EEOC fulfilled its pre-suit obligations, they should be cognizant that some courts will be more forgiving in allowing the EEOC to revisit failures to meet these obligations, as opposed to outright dismissing EEOC lawsuits.

 

 

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

Seyfarth Synopsis: In Sali v. Corona Regional Medical Center, No. 15-5640, 2018 U.S. App. LEXIS 11497 (9th Cir. May 3, 2018), a three judge panel of the U.S. Court of Appeals for the Ninth Circuit reversed a district court’s decision to deny class certification to a group of nurses.  The Ninth Circuit did so based on its holding that the district court should have considered evidence that would be inadmissible at trial under the Federal Rules of Evidence when it decided class certification.  This decision, which is at odds with precedent from the Fifth and Seventh Circuits, will make it more difficult for employers in the Ninth Circuit to resist class certification on evidentiary grounds. As a result, employers in the Ninth Circuit will need to emphasize other arguments in resisting class certification. Further, the plaintiffs’ class action bar is apt to press similar arguments in other circuits based on the holding in Sali.

Case Background

Plaintiffs Marlyn Sali and Deborah Spriggs (“Plaintiffs”) brought suit against their employer, Corona Regional Medical Center (“Corona”), alleging that Corona underpaid them and other nurses employed by Corona in violation of California law.  Most significant to the Ninth Circuit’s decision, Plaintiffs claimed that Corona improperly rounded the time of nurses employed by Corona, thereby resulting in lost wages.  Plaintiffs sought to certify seven classes, most of them derivative of Plaintiffs’ improper rounding claim.

In support of class certification, Plaintiffs submitted a declaration from a paralegal at the firm of Plaintiffs’ attorneys that attempted to show that Plaintiffs were injured by Corona’s rounding policy.  The paralegal “used Excel spreadsheets to compare [Plaintiffs’] rounded times with their actual clock-in and clock-out times using a random sampling of timesheets” and declared that, based on this comparison, Plaintiffs lost an average of between six and eight minutes per shift as a result of the rounding. Id. at *4.

The district court denied certification on multiple grounds.  The district court held that the typicality requirement of Rule 23(a) was not satisfied for any of the proposed classes because Plaintiffs failed to submit admissible evidence of their alleged injuries.  Specifically, the district court held that the declaration from the paralegal was inadmissible because: (i) the paralegal could not authenticate the documents he used to perform this analysis; (ii) the declaration was an inadmissible lay opinion; and (iii) the manipulation of the data done by the paralegal required an expert.

The district court also held that Spriggs was not an adequate class representative because she was not a member of any of the proposed classes.  It also held that Plaintiffs’ attorneys had not demonstrated that they could adequately serve as class counsel.  Finally, it concluded that Plaintiffs failed to meet the predominance requirement of Rule 26(b)(3) for four of their proposed classes.

Plaintiffs appealed the denial of class certification.

Ninth Circuit’s Decision

The Ninth Circuit reversed the district court’s denial of class certification.  The Ninth Circuit began its analysis by pointing out that, while class certification requires a “rigorous analysis,” it does not require “a mini-trial.”  Id. at *13-14.  It observed that “applying the formal strictures of trial to such an early stage of litigation makes little common sense” because “a class certification decision is far from a conclusive judgment on the merits of the case.”  Id. at *14.

The Ninth Circuit proceeded to hold that the district court abused its discretion when it concluded it could not consider inadmissible evidence at the class certification stage.  It came to this conclusion on two grounds.  First, the Ninth Circuit found that not allowing inadmissible evidence at the class certification stage would put plaintiffs at an unfair disadvantage because “the evidence needed to prove a class’s case often lies in a defendant’s possession and may be obtained only through discovery” and so “[l]imiting class-certification-stage proof to admissible evidence risks terminating actions before a putative class may gather crucial admissible evidence.”  Id. at *14-15.  Second, the Ninth Circuit concluded that “a court’s inquiry on a motion for class certification is tentative, preliminary, and limited” and thus that “there is bound to be some evidentiary uncertainty.”  Id. at *17.

The Ninth Circuit admitted that its decision conflicted with the Fifth Circuit’s decision in Unger v. Amedisys Inc., 401 F.3d 316, 319 (5th Cir. 2005), in which the Fifth Circuit held that a court’s “findings must be made based on adequate admissible evidence to justify class certification.”  Sali, 2018 U.S. App. LEXIS 11497, at *16.  The Ninth Circuit observed that its decision also may conflict with the Seventh Circuit’s decision in Messner v. Northshore Univ. Health Sys., 669 F.3d 802, 812 (7th Cir. 2012), and of the Third Circuit’s ruling of In Re Blood Reagents Antitrust Litig., 783 F.3d 183, 187 (3d Cir. 2015), both of which suggest that class certification evidence must be admissible.  Sali, 2018 U.S. App. LEXIS 11497, at *16.  The Ninth Circuit pointed out that the Eighth Circuit, in contrast, agreed that district courts should consider inadmissible evidence in deciding class certification in In Re Zurn Pex Plumbing Prod. Liab. Litig., 644 F.3d 604, 613 (8th Cir. 2011).

While holding that district courts should not automatically exclude inadmissible evidence in deciding class certification, the Ninth Circuit stated that it was not “dispens[ing] with the standards of admissibility entirely” at the certification stage.  Id. at *19.  Rather, the Ninth Circuit stated that courts “may consider whether the plaintiff’s proof is, or will likely lead to, admissible evidence” in deciding “the weight that evidence is given at the class certification stage.”  Id. at *20.

The Ninth Circuit also reversed the district court’s other justifications for declining certification.  The Ninth Circuit agreed with the district court that Plaintiff Spriggs was not a part of the class and thus not an adequate class representative, but held that Plaintiff Sali was part of the class and was an adequate class representative.  Id. at *20-21.  It held that the district court erred in finding class counsel inadequate because Plaintiffs’ counsel had “incurred thousands of dollars in costs and invested significant time in th[e] matter.”  Id. at *23.  Finally, the Ninth Circuit determined that Plaintiffs had met the predominance requirement because they raised common questions capable of class-wide resolution.

Implications For Employers

This decision is important for employers in the Ninth Circuit, not only because it will make it easier for plaintiffs to achieve class certification, but also because employers faced with class certification will need to adjust their defenses to account for the decision.  While employers should still raise admissibility concerns in opposing class certification to attack the weight of a plaintiff’s evidence, they must not hang their entire opposition on the inadmissibility of evidence because, in light of this decision, courts cannot simply ignore inadmissible evidence at the class certification stage.