By Gerald L. Maatman, Jr.

On October 31, 2014, in Oliver v. Orleans Parish Sch. Bd., No. 2014-C-0329 (La. Oct. 31, 2014), the Supreme Court of Louisiana reversed a Fourth Circuit Court of Appeal decision and dismissed a class action lawsuit brought by Plaintiffs, 7,600 former teachers and permanent school district employees who were terminated following Hurricane Katrina in 2005, against their school board and a host of State Defendants. While decision agreed with the Court of Appeal’s analysis of the res judicata doctrine (as the Plaintiffs had previously reached a settlement agreement with Defendant Orleans Parish School Board (“OPSB”), and the State of Louisiana (“State”), and those Defendants were previously dismissed from the lawsuit), the Supreme Court reversed the Court of Appeal’s application of the  “exceptional circumstances” exception to the res judicata doctrine. The Supreme Court also rejected Plaintiffs’ due process claims, citing the exigent circumstances caused by Hurricane Katrina.

This ruling from the Bayou country provides a valuable framework for how employers can use settlement agreements to preserve potential res judicata defenses in future litigation.

Case Background

On behalf of Plaintiffs, the Unified Teachers of New Orleans (“UTNO”), the exclusive bargaining representative for all Orleans Parish teachers, filed three lawsuits against the OPSB and the State defendants, alleging wrongful termination and a violation of due process rights, among other things. Id. at 11-12. Plaintiffs alleged that Defendants improperly placed class members on disaster leave, terminated them in violation of their employment contracts, and placed their schools in the hands of the State Defendants who failed to abide by certain statutes when re-staffing the schools, all as a result of Hurricane Katrina and the allegedly unconstitutional State Legislature Act 35. Id. at 24. While the claims against the State Defendants were dismissed, UTNO and OPSB reached a global settlement on September 18, 2007. Id. at 4, 8. A few months prior to settlement, Plaintiffs filed a class action lawsuit against the same OPSB and State Defendants, seeking class certification and damages.  Id. at 9.  In rejecting Defendants’ res judicata claims, both the trial court and the Court of Appeal let the newly filed lawsuit stand and subsequently allowed damages. Id. at 11-12.

The Decision Of The Supreme Court Of Louisiana

In reversing the Court of Appeal’s judgment, the Supreme Court of Louisiana held that the doctrine of res judicata applied, without any preclusion due to exceptional circumstances. Id. at 24. The Supreme Court applied the five requirements for a finding of res judicata under Burguieres v. Pollingue, 843 So. 2d 1049, 1052-53 (La. Feb. 25, 2003), including: (1) the judgment is valid; (2) the judgment is final; (3) the parties are the same; (4) the cause or causes of action asserted in the second suit existed at the time of the final judgment in the first litigation; and (5) the cause or causes of action asserted in the second suit arose out of the transaction or occurrence that was the subject matter of the first litigation. Id. at 13. The Supreme Court held that all five factors were satisfied here. Id. at 24. The Supreme Court discussed and rejected the potential “exceptional circumstances” exception to the res judicata defense based on the facts present. Id. at 20-21. Finally, in light of institutional damage caused by Hurricane Katrina, the Supreme Court held that Defendants’ post-termination staffing procedures satisfied due process. Id. at *22-23.

Implications For Employers

 Oliver is instructive for employers because it underscores the long-standing doctrine that settlement agreements are favored in the law and will be broadly construed. It also teachers that when reaching class action settlements with allegedly aggrieved workers, employers are well served to utilize the broadest possible language to document the resolution. This practice will often provide a res judicata defense in the face of later filed actions.

By Gerald L. Maatman, Jr. and Alexis P. Robertson

Settling a workplace class action is far more complicated than resolving other types of litigation. Yet, the fundamental building blocks of settling a case – an offer, acceptance of precise terms, and substantiation of the agreement – are equally as important in resolving a simple as well as a complex piece of litigation.

On September 23, 2014, Judge Amy St. Eve of the U.S. District Court for the Northern District of Illinois in Craftwood Lumber Co. v. Interline Brands, Inc., No. 11-CV-4462 (N.D. Ill. Sept. 23, 2014) drove home this point; the Court held that, despite creating a “term sheet” outlining certain terms of a purported class action settlement, the parties had not reached an enforceable settlement.

This ruling illustrates that although parties may be bound to a class settlement prior to the creation of the final agreement, which is what occurred in the Tenth Circuit decision of Miller v. Basic Research, LLC, covered here that in order to be bound, the parties must have at least reached an agreement to the material terms of the contract and exhibit the intent to be bound.

Though it is not an employment-related case, Judge St. Eve’s ruling in Craftwood Lumber ought to be required reading for any employer entering into settlement negotiations relative to a class action.

Background

Plaintiff, Craftwood Lumber, brought a putative class action alleging that, defendant, Interline Brands, Inc., violated the Telephone Consumer Protective Act of 1999, 47 U.S.C. §  227, by sending at least 1,500 advertisements in at least 735,000 facsimile transmissions, some of which were received by Plaintiff.  The parties attempted to settle the case through mediation.  At the end of the one-day session, the parties and counsel hastily signed a one-page document titled “Term Sheet.”

In the following weeks the parties unsuccessfully attempted to negotiate a written settlement agreement.  Defendant brought a motion to enforce the settlement, and in support, it provided the Court with a copy of the Term Sheet, arguing that the parties had entered in to a settlement agreement.  Plaintiff’s counsel objected, asserting that there was no agreement and that it was a violation of the confidentiality agreement to produce the Term Sheet to the Court.

The Court’s Opinion

Judge St. Eve held that the Term Sheet failed to include several terms that were material to the class action settlement.  The most significant omission was the amount per claim – what the Defendant would pay any class member for each fax recipient or each fax transmission.  Additionally, the Term Sheet lacked any release terms and settlement class definition.  The Court reasoned that the provisions upon which Defendant was basing its assertion that an agreement had been reached were insufficient to reasonably imply the missing terms. Judge St. Eve determined that she was unwilling to select those terms from the wide range of potential possibilities. Ultimately, the Court held that in addition to lacking materials terms, it was unclear whether the parties intended to be bound by the Term Sheet.  On this basis, the Court held that the parties did not enter in to an enforceable settlement agreement.

Implications for Employers

This ruling illustrates what can go awry in terms of documenting an enforceable class action settlement.  In order to secure an enforceable settlement agreement, the parties must reach an agreement on the material terms and evidence an intent to be bound.  Normally, this situation is not a problem given that the parties normally will strive to achieve these ends in the settlement agreement. This translates into investing significant time and effort to craft a precise Term Sheet; covering all of key terms of the settlement (such as the class definition, the class pay-out distribution formula, and the myriad of other bells and whistles that make up a Rule 23 class-wide settlement); and not leaving the settlement/mediation session unless and until all of these issues are covered and both parties express their intent to be bound. Simple, but critical…

By Timothy F. Haley

That’s not a typo! In a decision issued on August 8, 2014, Judge Lucy Koh of the U.S. District Court for the Northern District of California rejected the parties’ $324.5 million proposed class action settlement as inadequate and denied the Plaintiffs’ motion for preliminary approval in In Re High-Tech Employee Antitrust Litigation, 11-CV-0250, 2014 U.S. Dist. LEXIS 110064 (N.D. Cal. Aug. 8, 2014). At first blush that appears like a lot of money to deny the Plaintiff class and force a trial (absent a renewed offer). But Judge Koh’s opinion makes significant arguments to support her conclusion that the offer is insufficient.

The Decision

Plaintiffs filed five class action lawsuits against their seven former high technology employers, including Apple and Google, alleging that they had engaged in a conspiracy not to solicit one another’s employees. Plaintiffs alleged that this conspiracy violated §1 of the Sherman Antitrust Act and had the effect of suppressing the wages of the companies’ employees. (We have previously blogged about this case here, here and here.) The cases were consolidated and Plaintiffs filed a motion for class certification on October 1, 2012. The Court denied that motion on April 5, 2013, but without prejudice to the Plaintiffs filing an amended motion addressing the Court’s concerns. Id. at *6-8.

On July 12 and 30, 2013, after class certification had initially been denied and while an amended motion for class certification was pending, Plaintiffs settled with three of the Defendants (“Settled Defendants”) for $20 million (“Initial Settlement”). Preliminary approval of the settlement agreement was granted on September 12, 2013, and final approval was entered on May 1, 2014. On October 25, 2013, the Court granted the Plaintiffs’ amended class certification motion.  Thereafter, the remaining Defendants (“Remaining Defendants”) filed five motions for summary judgment and a motion to exclude the testimony of Plaintiffs’ expert, who opined that the total damages in the case exceeded $3 billion, which comes to more than $9 billion after trebling as required by the Sherman Act. The Court denied each of these motions. Id. at *8-10.

On April 24, 2014, one month before trial was set to commence, counsel for Plaintiffs and the Remaining Defendants sent the Court a joint letter stating that they had reached a settlement. The Plaintiffs’ motion for preliminary approval of the settlement was filed on May 22, 2014. But one of the named Plaintiffs, Michael Devine, split ranks and filed an opposition to the proposed agreement. Id. at *10-11. The agreement provided that the Remaining Defendants would pay a total of $324.5 million of which Plaintiffs’ counsel would seek up to 25%  (approximately $81 million) in attorneys’ fees, $1.2 million in costs, and $80,000 per class representative as incentive payments. It was estimated that the class members each would receive an average of approximately $3,750 from the settlement if the Court were to grant all the requested deductions and there were no further opt-outs. But the Court concluded that the settlement was inadequate and denied the Plaintiffs’ motion for preliminary approval. Id. at *15-16.

The Court’s principal concern was that the class members would recover less, on a proportional basis, from the proposed settlement than they would from the $20 million paid in the Initial Settlement. And this would occur, despite the fact that the case had progressed consistently in the class’s favor since the time of the Initial Settlement. The Settled Defendants contributed only 5% of the total compensation paid to the class during the class period, while the Remaining Defendants paid out 95% of the class’s total compensation. Based upon these figures, if the Remaining Defendants were to settle at the same (or higher) rate as the Settled Defendants, the Remaining Defendants would have to pay at least $380 million, more than $50 million greater than their proposal. Id. at *17-20. The Court also noted that based upon the potential damages of over $3 billion calculated by Plaintiffs’ expert, the total amount for both settlements would be 11.29% of single damages, or merely 3.76% of treble damages under the Sherman Act. Id. at *21.

The Court also opined that the evidence of an over-arching agreement not to solicit each other’s employees and the effect of the agreement in suppressing wages was compelling. Id. at *24-64. Given the fact that since the Initial Settlement the Plaintiffs had received orders certifying the class and denying the Defendants’ motions for summary judgment and to exclude Plaintiffs’ expert testimony, the Court saw no basis for discounting the settlement as compared to the Initial Settlement. Accordingly, the Court denied the Plaintiffs’ motion for preliminary approval. Id. at *64-67.

Implications For Employers

This is one of a number of recent wage suppression cases in which plaintiffs have been successful at obtaining class certification and recovering millions of dollars in settlements. Employers are sometimes unaware that application of the antitrust laws is not limited to the commercial marketplace. The Sherman Act also applies to agreements among employers that impact the employment market. Thus, employers should be cautious about exchanging information with competitors regarding wages or benefits or entering into agreements regarding the recruitment, solicitation or hiring of employees. As this case demonstrates, failure to do so could have very expensive consequences.

By Chris DeGroff and Brian Wong

In the world of EEOC systemic enforcement, court-imposed injunctive relief accompanies nearly every settlement of Title VII claims. The parties memorialize this relief in the form of a consent decree to be approved by the Court and entered as an enforceable order. Though the parties and the public tend to focus primarily on the dollar value of systemic action settlements, employers bound by consent decrees must remember that failure to comply with agreed-upon injunctive mandates could result in significant exposure for the company.

In EEOC v. Supervalu, Inc. and Jewel-Osco, Case No. 1:09-CV-05637 (N.D. Ill. July 15, 2014), the EEOC tried to send this very message to employers.

Background

On September 11, 2009, the EEOC sued Supervalu, Inc. and Jewel-Osco (collectively “Jewel”) in the U.S. District Court for the Northern District of Illinois, alleging Jewel engaged in a pattern or practice of violating Title I of the Americans with Disabilities Act.  Specifically the EEOC alleged Jewel prohibited disabled employees from returning to work after disability leaves unless they could return without accommodation, and that Jewel terminated such employees at the end of their one-year leave period.

On January 14, 2011, the EEOC and Jewel entered into a three-year Consent Decree to resolve the case. Among other provisions, the Consent Decree required Jewel to make monetary payments to eligible claimants, provide training to certain employees who administer disability leaves, and engage a “job description consultant” and “accommodations consultant” to improve job descriptions and assist in identifying possible accommodations for disabled employees.

The case was over. But was it?

The next year, on March 26, 2012, the EEOC filed a motion seeking civil contempt sanctions against Jewel for failing to follow the requirements of the Consent Decree as to three former employees. The EEOC also sought limited discovery on the issue, which the Court initially denied, but thereafter granted following written objections by the parties. After the parties engaged in limited discovery, the Court conducted evidentiary hearings on March 17 and 18 and April 7, 2014, before U.S. Magistrate Judge Michael T. Mason.

The Magistrate Judge’s Recommendation

Judge Mason filed his Report and Recommendation on July 15, 2014, determining that Jewel violated the terms of the Consent Decree by failing to accommodate and ultimately terminating three disabled employees.  According to the Court, Jewel failed to follow its own interactive process guidelines and declined to consider a list of possible accommodations generated by the accommodations consultant the company itself had appointed per the Consent Decree.  According to Magistrate Judge Mason, “[q]uite simply, the evidence [was] overwhelming that the company did not do what it was supposed to do under the Decree.” Id. at 46.

After determining clear and convincing evidence showed Jewel violated the Consent Decree, the Court recommended: (i) a finding of contempt on the part of Jewel; (ii) compensatory sanctions of over $82,000 in back pay for the three aggrieved individuals; (iii) a one year extension of the term of the Consent Decree; (iv) retention of a company-paid “special master” to review prospective accommodation decisions made by Jewel in the future; and (v) company payment of reasonable fees and costs incurred by the EEOC in pursuing its contempt motion.

But the saga continues.  Jewel has until July 29, 2014 to file objections to Judge Mason’s Report and Recommendations.  So blog readers, please stay tuned.

Implications For Employers

Regardless of the outcome of the ongoing briefing, this action brought by the EEOC serves as a cautionary tale for any employer living under the terms of an EEOC consent decree. Companies bound by consent decrees must remain vigilant, as the EEOC frequently looks for opportunities to retake the spotlight by making allegations about supposed compliance issues. As EEOC Chicago Regional Attorney John Hendrickson has warned, “Consent decrees have teeth.” The attraction of these compliance actions for the EEOC is clear:  tag-along actions like those discussed here have all of the publicity elements of an actual lawsuit, while expending minimal governmental resources. Because consent decrees often contain exhaustive injunctive mandates, robust documentation of those efforts can be a critical safeguard against aggressive EEOC allegations of non-compliance.

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

 

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Rebecca S. Bjork 

We have been following developments in an important case regarding judicial review of the EEOC’s statutory obligations to try and resolve discrimination complaints in conciliation before filing suit. Today, the Supreme Court decided to take up consideration of this issue, granting certiorari in Mach Mining, LLC v. EEOC (No. 13-1019). As our previous coverage of this case demonstrates, the outcome could be a game changer in EEOC litigation. The Seventh Circuit had ruled in December 2013 that an alleged failure to conciliate is not an affirmative defense to the merits of an employment discrimination suit brought by the Commission. The Seventh Circuit ruled it will not scrutinize the EEOC’s pre-suit obligations, so long as the EEOC’s complaint pleads it has complied with all procedures required under Title VII, and the relevant documents are facially sufficient. Mach Mining sought Supreme Court review due to conflicting rulings amongst the circuit courts about the courts’ authority and standards for reviewing the EEOC’s pre-suit conduct, and the EEOC did not oppose the petition for certiorari.

The case has significant implications for employers who are dealing with the EEOC. If the Supreme Court sides with the Seventh Circuit, employers will lose a powerful defense against the EEOC’s aggressive litigation tactics. We will continue to follow developments as the parties and amicus groups file their briefs, and keep our readers informed.

 

By Gerald L. Maatman, Jr., and Alexis P. Robertson

On June 20, 2014, the U.S. Court of Appeals for the Eighth Circuit reversed a district court’s dismissal of a request by the NFL Players’ Association and several NFL players (collectively, the “Association”) to set aside and reopen an earlier Stipulation and Settlement Agreement with the National Football League (“NFL”). The decision – Reggie White v. NFL Players Association, No. 13-1251 (8th Cir. June 21, 2014), illustrates that settlements and stipulations of dismissal in a class action context may be vulnerable to later attack under Rule 60 of the Federal Rules of Civil Procedure.

Background

In 1992, Reggie White and four other players sued the NFL on behalf of all other NFL players. They asserted that the NFL’s free agency system, college draft system, practice of using standard-form contracts, and several other NFL rules violated antitrust laws. Subsequently, the district court certified a class of current and former NFL players. While this lawsuit was pending, the NFL and the players began to negotiate a deal that they hoped would end the labor issues that had plagued their relationship. On February 26, 1993, these negotiations culminated in the signing of  the Stipulation and Settlement Agreement (“SSA”). Although styled as a settlement, it functionally operated as a collective bargaining agreement. The SSA awarded monetary relief to each class member to compensate them for the NFL’s alleged antitrust violations. The SSA also set forth rules regarding numerous labor-related issues.

Although the SSA was set to expire in 1996, the NFL and players agree to extend it four times – in 1996, 2000, 2002, and 2006.  In 2008, the NFL declined to extend the SSA.  The final year of the SSA became 2010.  For this final year, there was no salary cap.  The players expected the absence of a cap to yield a significant increase in player salaries.  When it did not, the players suspected that the NFL teams were colluding to avoid bidding wars over free agents.  As a result, players filed a complaint alleging that the NFL was colluding to suppress competition for free agents during the 2010 season.

In August 2011, the NFL and the Association agreed to terms on a new collection bargaining agreement. As part of this agreement, the two sides settled the various lawsuits between them. The NFL and Association settled the lawsuit over the alleged secret salary cap by signing a Dismissal under Federal Rule of Civil Procedure 41(a)(1)(A)(ii). In the Dismissal the Association agreed to dismiss with prejudice “all claims, known and unknown, whether pending or not, regarding the Stipulation and Settlement Agreement . . . including but not limited to claims asserting . . . collusion with respect to the 2010 League Year.”

After the dismissal was signed, several NFL owners made public statements about the NFL’s alleged collusion in 2010. The player’s association interpreted these statements as admissions that the NFL had colluded during the 2010 season to institute a secrete salary cap in violation of the SSA. On May 2012, the player’s association petitioned the district court to reopen and enforce the SSA so that it could pursue its collusion claim against the NFL with the new evidence.

When the NFL asserted that the Association had settled this claim in the Dismissal, the Association countered that the Dismissal was invalid because the district court had never approved the class action settlement as required by Rule  23(a).  After the district court denied the Association’s petition, the Association moved under Rule 60(b) to set aside the Dismissal on the ground that the NFL had procured the Dismissal by fraud, misrepresentation, or misconduct. The district court denied the motion.

The Eighth Circuit Opinion

On appeal, the Eight Circuit rejected Plaintiffs’ argument that the settlement was subject to Rule 23. The Eighth Circuit held that the stipulation to class certification from the 1993 SSA was unrelated to the allegations of alleged collusion. The two cases were linked peripherally by the SSA, but that was where the connection ended.

The Eighth Circuit reasoned that the SSA was not a true class settlement; instead, it was a “comprehensive collective bargaining agreement that set[] the terms of employment between the League and its players.” Id. at 11. Thus, The SSA was a “normal contract,” not a class settlement. Id. at 12. This was exemplified by the fact that, over the life of the SSA, neither party ever invoked Rule 23 for the numerous complaints that were filed for its alleged violation. The only time the parties did invoke Rule 23 was when they agreed to extend the SSA itself, and even then the parties did not actually follow Rule 23 because they did not provide notice to the same class members, but an entirely different group of players.

Next, the Eighth Circuit addressed whether, even though the Dismissal was valid, the district court erred in prohibiting the player’s association from seeking relief from the Dismissal under Rule 60(b). The Eighth Circuit found that a stipulated dismissal constituted a “judgment” under Rule 60(b). It reasoned that “[i]n nearly all relevant respects, an accepted offer of judgment [under Rule 68] is identical to a stipulated dismissal under Rule 41(a)(1)(A)(ii).” Id. at 16. Despite the fact that an offer of judgment shifts some of the potential costs of litigation to the plaintiff, the Eighth Circuit found that the “the two means of settlement are functionally equivalent.” Id. at 17. Therefore, it ruled that the Association could seek Rule 60(b) relief from the Dismissal. Id. at 18.

Implications For Employers

Although this is not an employment-related case, it has important implications for employers regarding the effect of a settlement and stipulated dismissal. This case illustrates that a stipulated dismissal may now be considered a “judgment” and therefore can potentially be revisited by a motion made pursuant to Rule 60(b) of the Federal Rules of Civil Procedure. The burden that a plaintiff must meet in order to prove that such a stipulation was fraudulent, remains high. But, the fact that a plaintiff may now more easily seek to attack a settlement and dismissal after it has been finalized makes this case significant.

 

By Laura J. Maechtlen and Brian Wong

The U.S. District Court for the Northern District of California recently published guidance for submission of class action settlements for preliminary and final approval. The Court’s guidance, available here, is a helpful chart for employers currently navigating the rocky shoals of class action settlement.

The guidance includes detailed suggestions as to what information the parties should provide in motions for preliminary and final approval, as well as various procedures the court suggests should be best, if not standard, practice moving forward. For example, the guidance suggests that parties secure claims administrators prior to filing for preliminary approval, and provide class notice via website and supplemental email where “feasible.” These practices may be common, but certainly are not universal at present.

Employers facing class actions should be sure to add the Northern District of California’s guidance on class settlement to their litigation tool kits. As the Court is quick to remind, compliant parties will benefit from minimized risk of “unnecessary delay, or even failure, of approval” of their class settlements.

By Gerald L. Maatman, Jr., Jennifer Riley, and Alexis Robertson

On June 2, 2014, the U.S. Court of Appeal for the Seventh Circuit overturned approval of a class action settlement that it described as “inequitable” and “even scandalous.” The decision, Eubank v. Pella, Nos. 13-2091, 13-2133, 13-2136, 13-2162 & 13-2202 (7th Cir. June 2, 2014), is a laundry list of what not to do when settling class actions and serves as a good reminder that a settlement will not necessarily pass scrutiny merely because the parties agree to the terms. Although it arose outside of the employment context, this case provides a road map of factors that employers facing class actions should keep in mind when approaching the negotiating table.

Background

In 2006, Pella, a leading manufacturer of windows, was sued on the basis that its “ProLine Series” of casement windows allowed water to enter and cause damage to the window frame and the house itself. It was alleged that Pella’s sale of the defective windows violated product-liability and consumer-protection laws of a number of states in which the windows were sold.

The district court certified two separate classes, including one for customers who had already replaced or repaired their defective windows, the other for those who had not. The first class sought damages and was limited to customers in six states, with a separate sub-class for each state. The latter class sought only declaratory relief and was nationwide in scope. The Seventh Circuit, over Pella’s objection, upheld the orders of class certification in Pella Corp. v. Saltzman, 606 F.3d 391 (7th Cir. 2010).  Class counsel subsequently negotiated a settlement with Pella in fall of 2011.

Initially the case had only one named plaintiff, a dentist named Leonard E. Saltzman. His son-in-law,  Paul M. Weiss, was lead counsel for the class. Weiss’ firm was also lead class counsel. Mr. Weiss’ wife – Saltzman’s daughter – was also a lawyer, and a partner in her husband’s firm. Both Mr. and Mrs. Weiss were defendants in a lawsuit charging them with misappropriation of the assets of their  firm. Further, Mr. Weiss was the subject of an additional lawsuit that resulted in a disciplinary committee recommendation that he be suspended from practicing law for 30 months.

Early in the litigation, four class members were added as plaintiffs, in addition to Saltzman. When the settlement was presented to the district court for preliminary approval, the four class members who had also been named as plaintiffs opposed it.   These four members were subsequently removed and replaced with members who supported Saltzman.

The final settlement directed Pella to pay $11 million in attorney’s fees to class counsel. The basis for this figure was plaintiffs’ claim that the settlement was worth $90 million to the class. However, the settlement did not specify an amount of money to be received by the class members, as distinct from class counsel. Instead, it specified a procedure by which class members could claim damages.

The Seventh Circuit Opinion

Judge Richard Posner, issuing the opinion for the Seventh Circuit, found no reason to affirm the class settlement and ruled that the settlement contained “every danger sign in a class action settlement” that the Seventh Circuit had previously “warned district judges to be on the lookout for. . . .” Id. at 21. In stern language, he asserted that the objectors in this litigation were right because they “smell[ed] a rat…” Id. at 5.

The Seventh Circuit’s opinion is essentially a recitation of what went wrong. The Seventh Circuit identified that lack of an adversarial presentation as a primary reason why a district court would approve such an unfair settlement: “This is a case in which he lawyers support the settlement to get fees; the defendants support it to evade liability; the court can’t vindicate the class’s rights because the friendly presentation means that it lacks essential information.” Id. at 22.

The Seventh Circuit also ticked off the wide array of “danger sign(s)” that, nevertheless, should have signaled to the district court that the settlement was insufficient. Id. at 21. The key read flags were numerous: (i) the settlement agreement ignored that two classes had been certified and purported to bind a single nationwide class consisting of all owners of Pella ProLine windows containing the defect, whether or not the owners have already replaced the windows; (ii) the family relationship between lead class counsel and the named representative raised significant concerns; (iii) the lawsuits, disciplinary hearings, and ethical troubles that embroiled class counsel, and the likely financial hardship that resulted and further incentivized plaintiff’s counsel to reach a settlement, signaled further problems; (iv) the procedural maneuver the resulted in the replacement of all class representatives that disagreed with the settlement further exacerbated these problems; (v) the fact that the settlement did not specify how much was to be received by class and instead replaced it with a procedure by which class members had to execute complex and arcane forms in order to receive payment simply would not be fair; (vi) Plaintiff’s overall estimate of the value of the settlement was not credible, as Plaintiff,  and subsequently the district court judge, estimated that it was worth $90 million, clearly in an effort to make their $11 million payout in attorney’s fees appear reasonable (in doing the math, it became clear that it was valued at significantly less than that, as Judge Posner found that the class could not reasonably expect to receive more than $8.5 million from the settlement); and (vii) the settlement agreement gave lead class counsel “sole discretion” to allocate the award of attorneys’ fees to which the parties had agreed among the class counsel. Id.at 7.

Based on these factors, the Seventh Circuit rejected Plaintiffs’ argument that the settlement must have been fair because the notice to class resulted in very few objections to the settlement. The Seventh Circuit recognized that not only was the notice designed as to avoid objection, but also that “[i]t was not neutral and it did not provide a truthful basis for deciding whether to opt out.” Id. at 20. Additionally, opting-out of a class is extremely rare. An individual who opts out is “unlikely to hire a lawyer and litigate over a window.” Id. at 21. Overall, the Seventh Circuit found that “[t]he settlement flunked the fairness standard by the one-sideness of its terms and the fatal conflicts of interest on the part of Saltzman and Weiss.” Id. at 22.

Implications For Employers

Employers can learn from Eubank v. Saltzman, even though it is not an employment-related class action. In settling a class action, it is important to recognize that frequently at the settlement phase, the interests of defendants and class counsel are aligned. Because of this – especially in light of this ruling – just because the parties agree, that does not mean that the settlement is proper or will be affirmed by the district court (or on appeal).

By Laura J. Maechtlen and Brian Wong

On May 20, 2014, the California Department of Fair Employment and Housing (“DFEH”) announced the impending settlement of its high-profile systemic action against the Law School Admission Council, Inc. (“LSAC”). Our ongoing coverage of this case, DFEH v. Law School Admission Council, Inc., No. 12-CV-1830, can be found here and here. The proposed settlement will include payment by LSAC of upwards of $8 million in penalties, damages, costs and fees, as well as an exhaustive slate of injunctive relief.

This multimillion dollar settlement is a big win for the DFEH, and a clear warning to employers that state agency systemic enforcement is here to stay. The agency’s press release can be found here, and the U.S. Department of Justice’s press release is available here.

Background

The DFEH’s enforcement suit sought damages and injunctive relief for alleged failure by LSAC to provide disability-related accommodations to individuals taking its Law School Admission Test (“LSAT”). The DFEH brought its action both on behalf of seventeen named individuals, and also on behalf of a “group or class” consisting of all disabled individuals in California who have requested a reasonable accommodation for the LSAT since January 2009. During litigation, the U.S. Department of Justice and a number of individuals joined the DFEH as plaintiff-interveners.

The DFEH alleged that LSAC violates titles III and V of the Americans with Disabilities Act (“ADA”), 42 U.S.C. §§ 12181 et seq. and 12203—incorporated by reference in Unruh Civil Rights Act, Cal. Civ. Code § 51(f)—by (i) failing to provide required testing accommodations to individuals with disabilities; (ii) subjecting applicants requiring accommodations to excessive documentation demands; and (iii) annotating or “flagging” such individuals’ test results prior to sending their scores to law schools.

Over the course of the lawsuit, the DFEH flexed its newfound enforcement powers (see here for our prior discussion of the agency’s novel authority) in an attempt to lay further groundwork for future systemic actions. On April 22, 2013, Judge Edward Chen of the U.S. District Court for the Northern District of California held that DFEH collective enforcement actions are cut from the same cloth as EEOC enforcement suits, and therefore need not satisfy federal Rule 23 class certification requirements (see here for our analysis of Judge Chen’s order). The DFEH has already shown its eagerness to rely on this ruling as it looks to pursue future collective actions against large employers in California.

Terms Of Settlement

The parties in DFEH v. LSAC, Inc. memorialized the terms of their proposed settlement in a lengthy 61-page consent decree filed with the district court on May 20. Pending court approval of the consent decree, LSAC will pay over $8 million for costs and fees, civil penalties, damages payments to named claimants and plaintiff-interveners, and creation of a large monetary fund to compensate thousands of aggrieved claimants.

Major elements of the consent decree’s exhaustive slate of injunctive relief include: (i) creation of new policies and practices for processing accommodation requests; (ii) engagement of expert consultants for evaluation of testing accommodation requests; (iii) enhanced tracking of accommodation-related data; (iv) ADA notice posting, monitoring and reporting; and (v) alteration of LSAC’s score annotation practices.

Implications For Employers

Settlement of this high-profile case heralds a new reality in systemic enforcement litigation – the DFEH now has a model for engaging employers in “bet the company” systemic lawsuits on behalf of large swaths of employer workforces to which Rule 23 class certification requirements may not apply.

The question on employers’ minds nationwide now should be: “Will agencies in other states also join in the EEOC’s unwavering focus on systemic litigation?” Provided they have the statutory authority to so act, this settlement may well entice them. The best defense? As we discussed recently in our CalPecs blog, employers should ensure their policies and procedures strictly comply with state and federal law, and that managers receive the training they need to know, observe, and enforce these policies and procedures.

Please visit our sister blog’s recent analysis of this case here for additional thoughts on the impact of DFEH v. LSAC, Inc. from an ADA Title III standpoint.

By Reema Kapur and Alexis P. Robertson

On May 6, 2014, the U.S. Court of Appeals for the Tenth Circuit in Miller v. Basic Research, LLC, No.13-4048 (10th Cir. May 6, 2014), dismissed defendant’s appeal of a district court’s order enforcing a class settlement agreement, over defendants objection. The Tenth Circuit held that the case was an impermissible interlocutory appeal and that it therefore had no jurisdiction.

The ruling is important for employers in the process of settling workplace class actions. It illustrates that once material terms of settlement have been agreed upon, later attempts to abandon the agreement may be unsuccessful and notice may be sent to class, over defendant’s objection, before appellate review.

Background

Defendant, Basic Research, a manufacturer of a weight-loss dietary supplement called Akävar 20/50, marketed its drug as follows: “Eat all you want and still lose weight.” A class of purchasers filed suit, alleging that they relied on the marketing pitch, and that the slogan constituted false and misleading advertising.

The district court certified a class “limited to those persons who purchased Akavar in reliance on the slogan ‘Eat all you want and still lose weight.’” After class certification, the parties entered into mediation. Following negotiations, defendants’ counsel drafted and all parties signed a handwritten “Proposed Terms” document outlining the terms of an expected class settlement. The parties then filed a notice of settlement with the district court.  The notice stated that the mediation was “successful” and that the parties were preparing a formal settlement agreement.

At some point, defendants stopped participating in the drafting process. Plaintiffs subsequently moved to enforce what they argued was a binding contract. The district court granted plaintiffs’ motion. It concluded that the parties had agreed to the material terms of a settlement and that any ongoing disagreements concerned only “linguistic changes.” Miller v. Basic Research, LLC, 2013 WL 1194721, at *1 (D. Utah, Mar. 22, 2013). Defendants appealed, arguing that, amongst other things, their interests would be harmed by sending out notice of settlement prior to appellate review.

The Tenth Circuit Opinion

The Tenth Circuit never made it to the merits of the appeal. The Tenth Circuit focused its opinion on whether it had jurisdiction to hear the matter and concluded that it did not. The Tenth Circuit reasoned that because the district court had not yet reached its final decision, which would entail approving the proposed settlement, and because the defendants were unable to prove an exception to the final judgment rule, it lacked appellate jurisdiction.

The Tenth Circuit rejected defendant’s argument that granting enforcement of the settlement was the functional equivalent of issuing an injunction under 28 U.S.C. § 1292(a)(1) (providing appellate jurisdiction to review district court orders “granting, continuing, modifying, refusing or dissolving injunctions.”) Further, the Tenth Circuit did not find that it had appellate jurisdiction under the collateral order doctrine. The Tenth Circuit was not persuaded that delaying appellate review imposed serious consequences or that the district court’s decision would evade appellate review. The Tenth Circuit further stressed that the fairness to the plaintiff class would be addressed at the Rule 23 hearing.

Implications for Employers

This case is a cautionary tale for companies involved in class action settlements. A defendant has an interest in settling a class action, but it faces potential problems if it backs out of a “deal” when the parties’ memorandum of understanding is deemed enforceable and its terms disadvantage the defendant. As a matter of contract law, if material terms have been agreed upon, complete abandonment of the settlement negotiation by a defendant will not serve to kill the settlement. The agreement, although not final, may be far enough along to be enforced by the district court and such enforcement will not be immediately appealable. In the context of class settlement, this may result in class notice being issued notwithstanding defendants’ objections and prior to any appellate review.