By Lorie Almon, Gerald L. Maatman, Jr., and Ian Morrison

Back by popular demand, our Annual Workplace Class Action Litigation Report Webinar is on Thursday, January 22, 2015. Click here to register and attend. It’s free!

Workplace class action litigation continues to accelerate, grow, and pose extraordinary risks for employers. Skilled plaintiffs’ lawyers are continually developing new theories and approaches to complex employment litigation. Hence, the events of the past year in the workplace class action world demonstrate that the array of bet-the-company litigation issues that businesses face are continuing to widen and undergo significant change. At the same time, governmental enforcement litigation pursued by the U.S. Equal Employment Commission and the U.S. Department of Labor manifests the aggressive “push-the-envelope” agenda of two activist agencies, and regulatory oversight of workplace issues continues to be a priority. All of these factors combine to challenge businesses to integrate their litigation and risk mitigation strategies to navigate these exposures.

Our readers have given us wide-ranging feedback since the launch of the 11th Annual Report earlier this month. We are pleased with the positive press we received from commentators, including Forbes, Law 360, BNA Class Action Reporter, Corporate Counsel Magazine, and SHRM (click here, here, here, and here to read more.)

For an interactive analysis of 2014 decisions and emerging trends, please join us for our annual webinar offered in conjunction with the publication of our 11th Annual Workplace Class Action Report. The Report’s author, partner Gerald L. Maatman, Jr., along with partners Lorie Almon and Ian Morrison, chairs of our wage & hour and ERISA class action groups, will cover a changed national landscape in workplace class action litigation.

Other significant developments to be addressed include:

  • The increasing focus of the U.S. Equal Employment Opportunity Commission on high-stakes, big-impact litigation
  • A continuing rising tide of Wage & Hour class actions and collective actions
  • Transformative decisions regarding the Class Action Fairness Act
  • The decreasing settlement values in all areas but ERISA litigation and what it means for employers
  • The profound impact of the decisions in Wal-Mart And Comcast Corp. on Rule 23 case law developments

The date and time of the webinar is Thursday, January 22, 2015:

1:00 p.m. to 2:00 p.m. Eastern Time

12:00 p.m. to 1:00 p.m. Central Time

11:00 a.m. to 12:00 p.m. Mountain Time

10:00 a.m. to 11:00 a.m. Pacific Time

Speakers: Lorie Almon, Gerald L. Maatman, Jr., and Ian Morrison

By Gerald L. Maatman Jr.

Our 2015 Report is now ready. At 844 pages, it analyzes 1,219 rulings and is our biggest and best Report ever.

Click here to order your copy in eBook format. Click here to download Chapters 1 and 2 on the 2015 Executive Summary/Key Trends and the Top Class Action Settlements.

The Report is the sole compendium in the U.S. dedicated exclusively to workplace class action litigation, and has become the “go to” research and resource guide for businesses and their corporate counsel facing complex litigation. We were humbled and honored by the review of our Report by Employment Practices Liability Consultant Magazine (“EPLiC”) – the review is here. EPLiC said: “The Report is the singular, definitive source of information, research, and in-depth analysis on employment-related class action litigation. Practitioners and corporate counsel should not be without it on their desk, since the Report is the sole compendium of its kind in the United States.”

The 2015 Report analyzes rulings from all state and federal courts – including private plaintiff class actions and collective actions, and government enforcement actions –  in the substantive areas of Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, and the Class Action Fairness Act of 2005. It also features chapters on EEOC pattern or practice rulings, state law class certification decisions, and non-workplace class action rulings that impact employers. The Report also analyzes the leading class action settlements for 2014 for employment discrimination, wage & hour, and ERISA class actions, as well as settlements of government enforcement actions, both with respect to monetary values and injunctive relief provisions.

Executive Summary & Key Trends

Workplace class action litigation continues to accelerate, grow, and pose extraordinary risks for employers. Skilled plaintiffs’ lawyers are continually developing new theories and approaches to complex employment litigation. Hence, the events of the past year in the workplace class action world demonstrate that the array of bet-the-company litigation issues that businesses face are continuing to widen and undergo significant change. At the same time, governmental enforcement litigation pursued by the U.S. Equal Employment Commission and the U.S. Department of Labor manifests the aggressive “push-the-envelope” agenda of two activist agencies, and regulatory oversight of workplace issues continues to be a priority. All of these factors combine to challenge businesses to integrate their litigation and risk mitigation strategies to navigate these exposures.

The Supreme Court’s Class Action Rulings In 2014

By almost any measure, 2014 was a year of evolving changes for workplace class action litigation. The U.S. Supreme Court issued several class action rulings in 2013 – in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), American Express Co. v. Italian Restaurant, 133 S. Ct. 2304 (2013), and Standard Fire Insurance Co. v. Knowles, 133 S. Ct. 1345 (2013) – that impacted all varieties of complex litigation in a profound manner over the past year, as lower federal courts and state courts interpreted and applied these new precedents. The Supreme Court added to this growing body of class action case law with rulings in 2014 in Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014), Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014), Integrity Staffing Solutions, Inc. v. Busk, 2014 U.S. LEXIS 8293 (U.S. Dec. 9, 2014), and Dart Cherokee Basin Operating Co., LLC v. Owens, 2014 U.S. LEXIS 8435 (U.S. Dec. 15, 2014). These Supreme Court rulings had an immediate impact on workplace class action issues, and are sure to shape litigation issues and strategies in 2015 and beyond.

The Impact Of Wal-Mart Stores v. Dukes

More than any other development in 2014, however, the decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), continued to have a wide-ranging impact on virtually all types of class actions pending in both federal and state courts throughout the country. In many respects, Wal-Mart continued to be the “seminal precedent” in courtrooms in 2014 as litigants argued and judges analyzed class certification issues. Rule 23 decisions in 2014 in large part pivoted off of Wal-Mart, and leverage points in class action litigation increased or decreased depending on the manner in which judges interpreted and applied Wal-Mart. At the same time, the ruling in Comcast Corp. fueled defense arguments by undermining attacks on class certification in a wide range of contexts, which were met with mixed success for employers.

As is well-known by now, the Supreme Court’s decision in Wal-Mart elucidated whether Rule 23(b)(2) can be used to recover individualized monetary relief for a class (and held it may not), established a heightened standard for the Rule 23(a)(2) commonality requirement (and determined that common questions for a class must have common answers), and rejected previous lower court interpretations of Supreme Court precedent on Rule 23 burdens of proof (and found that to the extent factual determinations that go to the merits also overlap with the Rule 23 requirements, those factual issues must be analyzed to determine the propriety of class certification). As a result, Wal-Mart continued to foster a tidal wave of Rule 23 decisions in 2014, as litigants and courts grappled with the ruling’s implications in a wide variety of workplace class action litigation contexts. As of the close of 2014, Wal-Mart had been cited a total of 571 times in lower federal and state court rulings.

The Impact Of Comcast Corp. v. Behrend

Last year’s ruling in Comcast Corp. also added a new weapon to employers’ arsenals in challenging class certification.  In Comcast Corp., the Supreme Court interpreted Rule 23(b)(3) – which requires “questions of law or fact common to class members predominate over any questions affecting only individual members” – to mandate that a class’ proposed damages model show damages on a class-wide basis. In so determining, the Supreme Court reaffirmed that lower courts must undertake a “rigorous analysis” of whether a putative class satisfies the predominance criterion set forth in Rule 23(b)(3), even if that analysis overlaps with the merits of the underlying claims, and held that individual issues of damages may preclude class certification. This decision provides companies with a significant and rational defense to class certification in class actions. Much like Wal-Mart, the decision in Comcast Corp. reverberated throughout the lower federal and state courts in 2014, and was cited a total of 261 times by the close of the year, a rather remarkable figure for a decision rendered in March of 2013.

Against this backdrop, the plaintiffs’ class action employment bar filed and prosecuted significant class action and collective action lawsuits against employers in 2014. In turn, employers litigated an increasing number of novel defenses to these class action theories, which were fueled, in part, by the new requirements enunciated in Wal-Mart and Comcast Corp.  As this Report reflects, federal and state courts addressed a myriad of new theories and defenses in ruling on workplace class action litigation issues. The impact and meaning of “Wal-Mart issues” and “Comcast Corp. issues” were at the forefront of these case law developments in the debate over the role and meaning of Rule 23 in workplace class action litigation.

The Six Key Trends Of 2014 In Workplace Class Action Developments

An overview of workplace class action developments in 2014 reveals six key trends.

Trend # 1 – Settlements Values/Totals Were Down Except For ERISA Class Actions

First, the Supreme Court’s opinions in Wal-Mart and Comcast Corp. have had a profound influence in shaping settlement strategies. Employers are settling fewer employment discrimination class actions than at any time over the past decade, and at a fraction of the levels as in 2006 to 2013. On the wage & hour front, settlements in the aggregate were relatively flat, and in terms of governmental enforcement litigation, settlement numbers and aggregate totals were significantly lower than in any year since 2006. In contrast, ERISA class actions experienced a renaissance of sorts, and settlement numbers were nearly ten times greater than the aggregate amount in 2013.

Trend # 2 – Wage & Hour Litigation Filings Continued To Increase

Second, more than any other litigation risk, wage & hour class actions dwarfed all other types of filings (as compared to employment discrimination and ERISA class actions, as well as governmental enforcement litigation). Wage & hour litigation now represents the prime litigation risk in the workplace. The “crest” of the wage & hour litigation wave is not yet in sight. Employers can expect more of the same in terms of increased filings 2015.

Trend # 3 – Wage & Hour Collective Action/Class Action Rulings Were More Dominant Than Other Types Of Complex Employment Rulings

Third, FLSA collective actions and state law wage & hour class actions produced more decisions from federal and state courts than any other area of complex employment litigation. The magnet federal jurisdictions were the Second and Ninth Circuits, and state law claims were congregated in plaintiff-friendly venues such as California, Florida, Massachusetts, New Jersey, New York, and Pennsylvania. Statistically, plaintiffs won 70% of conditional certification motions, and won (by defeating) 52% of decertification motions in 2014 in federal courts.

Trend # 4 – The Government’s Enforcement Litigation Manifested Very Aggressive Agency Positions, But Recoveries Were Down

Fourth, the U.S. Department of Labor (“DOL”) and the U.S. Equal Employment Opportunity Commission (“EEOC”) continued their aggressive litigation approaches, albeit with mixed success. The agencies suffered losses on a myriad of litigation issues in the federal courts in 2014, and their aggregate settlement recoveries were significantly lower in 2014 than at any time since 2006. At the same time, the EEOC’s systemic investigation program – in which the Commission emphasizes the identification, investigation, and litigation of discrimination claims affecting large groups of “alleged victims” – expanded yet again over prior years. The EEOC’s docket of systemic suits comprised nearly 20% of all merits filings of 2014, and by the end of the year, represented nearly 25% of the Commission’s active litigation docket. This development is of critical importance to employers, for it evidences an agency with a laser-focus on high-impact, big stakes litigation.

Trend # 5 – Decisions Regarding The Class Action Fairness Act Were Transformative

Fifth, 2014 was a transformative year in case law developments under the Class Action Fairness Act of 2005 (“CAFA”). Jurisprudence under the CAFA continued to mature after the U.S. Supreme Court decided its first case on the law in 2013 in Standard Fire Insurance Co. v. Knowles. In 2014, the Supreme Court held in Dart Cherokee Basin Operating Co., LLC v. Owens that defendants are not required to submit evidence in support of a removal petition under the CAFA, and that a short and plain statement of fact is enough. The Supreme Court also reaffirmed that there is no presumption against removals under the CAFA.  Case law under the CAFA has certainly turned the corner in this regard for employers, thereby solidifying defense strategies to secure removal of class actions to federal court.

Trend # 6 – The Decisions In Wal-Mart And Comcast Corp. Had A Profound Impact On Rule 23 Case Law Developments In 2014

Sixth, the Supreme Court’s opinions in Wal-Mart and Comcast Corp. had a profound influence in shaping the course of class action litigation rulings throughout 2014. Wal-Mart and Comcast Corp. prompted defendants to mount challenges to class certification based on all sorts of theories (and not just those modeled after the nationwide class claims rejected in Wal-Mart and the antitrust damages issues discussed in Comcast Corp.). This resulted in new types of case law rulings on a myriad of Rule 23-related issues. The result was a year of decisions on class action issues the likes of which have never been seen before. This wave of new case law is still in its infancy. As many class action issues are in a state of flux post-Wal-Mart and post-Comcast Corp., these evolving precedents are expected to continue to develop in the coming year.

Implications For Employers

The past year was a big one for workplace class actions. The coming year is likely to be equally as challenging for employers.

By Gerald L. Maatman, Jr. and Rebecca S. Bjork

The U.S. Supreme Court ruled on a 5-4 vote today — across perceived “liberal/conservative” lines, at least until the very end — that defendants may remove class action lawsuits under the Class Action Fairness Act (“CAFA”) without submitting evidence to support the $5 million amount-in-controversy threshold.  In Dart Cherokee Basin Operating Co., LLC v. Owens, No. 13-719 (U.S. Dec. 15, 2015), Justice Ginsburg, just back from heart surgery, authored the majority opinion that was joined by Chief Justice Roberts and Justices Alito, Breyer, and Sotomayor. The majority issued two holdings: (1) that the liberal pleading requirements of Rule 8 apply also to notices removing cases to federal, from state, court; and (2) the Tenth Circuit abused its discretion when it denied Defendant Dart’s petition to review the remand order the district court issued sending the case back to state court.

While not a workplace class action, the decision in Dart Cherokee Basin Operating Co., LLC v. Owens ought to make it easier for employers to remove employment-related class actions from state court to federal court.

Background To The Case

Dart, an oil and gas operating company, along with a pipeline operator, were sued in a state court class action alleging they underpaid royalties to mineral rights owners in Kansas. Dart , slip op, at 2. In removing the case to federal court, the defendants asserted plaintiffs would recover $8.2 million in damages, far in excess of the CAFA’s $5 million threshold. Id. Plaintiff moved to remand to state court, arguing the removal notice was deficient as a matter of law for lack of any evidence supporting the figure.  Id.  In response, Dart submitted an affidavit from an executive supporting the figure, but the district court agreed with the plaintiff that it was too late, and remanded back to state court. Id. at 2-3. And although Dart appealed to the Tenth Circuit under the CAFA exception to the bar against appealing remand orders, codified at 28 U.S.C. § 1453(c)(1), the Tenth Circuit refused to take the case. Id. at 3. In dissent from denial of en banc review, Judge Hartz of the Tenth Circuit explained the decision erroneously imposed high pleading requirements in removal notices beyond even those required by code pleading rejected long ago, and that the error would not be corrected in future cases because no attorney going forward would risk remand and not taking the time to collect and present evidence in a removal notice. Id. at 4.

The parties subsequently sought certiorari to the U.S. Supreme Court to ask whether evidence is needed in removal notices under the CAFA.

The Supreme Court’s Ruling

As for the majority’s first holding, Justice Ginsburg explained that the removal statute by its own terminology, bolstered by legislative history and other statutory provisions, provides the answer. Dart, slip op. at 2, 5-6. Briefly, 28 U.S.C. § 1446(a) states that a party removing a case needs to provide a “short and plain statement” supporting the basis for federal jurisdiction.  Id. at 5.  Justice Ginsburg reasoned that Congress wanted to simplify removal, and disapproved amendments making it more onerous. Id. at 5. She also concluded that the CAFA evidences no presumption against removal, if such a thing even exists in diversity jurisdiction cases (a question she expressly reserved for another case). Id. at 7.

Then the majority dealt with a jurisdictional challenge to the Supreme Court’s ability to hear the case filed by amicus curiae Public Citizen, Inc. on behalf of the plaintiff. It had argued that because the court of appeals used its discretion to deny Dart’s appeal, the merits of the case at the district court level were not before the Supreme Court. Id. at 8. But because “[d]iscretion to review a remand order is not rudderless[,]” the majority explained the Tenth Circuit and Supreme Court could in this case because where, as here, the district court relied on an erroneous view of the law, and hence the district court “necessarily” abuses its discretion. Id. at 8-9. The majority adopted Judge Hartz’s view, including that no attorney would in the future file a removal notice in the Tenth Circuit without evidence of the amount-in-controversy. Id. at 9-10. The majority did state, however, that if on remand the Tenth Circuit articulates a reason — other than the need to provide evidence upon removal — for its discretion to deny hearing the appeal, it may do so. Id. at 14 at n.8.

The four dissenters agreed with Public Citizen that the only issue the Supreme Court could review, i.e., the Tenth Circuit’s decision not to take the appeal, was not presented by the parties, who both engaged the district court’s decision to require evidence, not the Tenth Circuit’s reasons for rejecting review. Id. at 1-2 (Scalia, J., dissenting). Describing this as a “little snag” discovered during the briefing, the dissent argued the Supreme Court should have dismissed the writ of certiorari as improvidently granted, but did not, instead issuing a ruling relating to the district court’s decision. Id. at 2. Justice Scalia further wrote that upon Justice Ginsburg pointing out that he made a similar mistake in an important class action case decided last year, Standard Fire v. Knowles, he “will take [the mistake] to the grave.”

Implications For Employers

Notwithstanding the “Supreme Court intrigue” one can read into this decision and the dissenting opinions, it should matter to our readers for the following reason — the CAFA was enacted in part to streamline removal proceedings, which had become overly complicated in class action cases, and too heavily weighted in favor of the plaintiffs’ interests. In this opinion, the Supreme Court has provided needed clarity and consistency in the law.

 

By Gerald L. Maatman, Jr.

Happy Holiday season to our loyal readers of the Workplace Class Action Blog!

Our elves are busy at work this holiday season in wrapping up the galley proofs of our start-of-the-year kick-off publication – Seyfarth Shaw’s Annual Workplace Class Action Litigation Report.

We anticipate going to press in the first week of January, and launching the 2015 Report to our readers from our Blog.

This will be our Eleventh Annual Report, and the biggest yet with analysis of over 1,300 class certification rulings from federal and state courts in 2014. As last year, the Report will be available for download as an E-Book too.

The Report is the sole compendium in the U.S. dedicated exclusively to workplace class action litigation, and has become the “go to” research and resource guide for businesses and their corporate counsel facing complex litigation. We were humbled and honored by the review of our Report by Employment Practices Liability Consultant Magazine (“EPLiC”) – the review is here. EPLiC said: “The Report is the singular, definitive source of information, research, and in-depth analysis on employment-related class action litigation. Practitioners and corporate counsel should not be without it on their desk, since the Report is the sole compendium of its kind in the United States.”

The 2015 Report will analyze rulings from all state and federal courts – including private plaintiff class actions and collective actions, and government enforcement actions –  in the substantive areas of Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, and the Class Action Fairness Act of 2005. It also features chapters on EEOC pattern or practice rulings, state law class certification decisions, and non-workplace class action rulings that impact employers. The Report also analyzes the leading class action settlements for 2014 for employment discrimination, wage & hour, and ERISA class actions, as well as settlements of government enforcement actions, both with respect to monetary values and injunctive relief provisions.

Information on downloading your copy of the 2015 Report will be available on our blog in early January. Happy Holidays!

By Lorie Almon, Gerald L. Maatman, Jr., and Ian Morrison

Back by popular demand, our Annual Workplace Class Action Report Webinar is on Tuesday, February 11, 2013. Click here to register and attend.

In the past two years we have seen a combination of Supreme Court decisions help create a defensive barrier for employers in class action cases. Enough time has passed, however, that plaintiff lawyers have begun to breach this barrier with new theories and approaches and, combined with increasing and aggressive government enforcement litigation, employers may once again find themselves facing bet-the-company-type class actions in 2014.

More than any other development in 2013, Wal-Mart Stores, Inc. v. Dukes continued to have a wide-ranging impact on virtually all class actions pending in federal and state courts throughout the country. Many Rule 23 decisions in 2013 pivoted off of Wal-Mart and leverage points in class action litigation increased or decreased depending on the manner in which judges interpreted and applied Wal-Mart.

Our readers have given us wide-ranging feedback over the last three weeks since the launch of the 10th Annual Report in the second week of January. Over 5,500 copies of the report have been downloaded to clients and the readers of our blog. We are pleased with the positive press we received from commentators, including Forbes, The Wall Street Journal, Corporate Counsel, Law360, Insurance Business America, and Bloomberg BNA Daily Labor Report and Class Action Reporter (read more here, here, here, here, here, and here).

For an interactive analysis of 2013 decisions and emerging trends, please join us for our annual webinar offered in conjunction with the publication of our 10th Annual Workplace Class Action Report. The Report’s author, partner Gerald L. Maatman, Jr., along with partners Lorie Almon and Ian Morrison, chairs of our wage & hour and ERISA class action groups, will cover a changed national landscape in workplace litigation.

Other significant developments to be addressed include:

  • The increasing focus of the U.S. Equal Employment Opportunity Commission on high-stakes, big-impact litigation
  • A continuing rising tide of Wage & Hour cases
  • Implications of the Supreme Court’s first ruling on the Class Action Fairness Act in Standard Fire Insurance Co. v. Knowles
  • Additions to the increasing number of rulings allowing employers to use arbitration agreements to manage class action risks
  • Rapid strategic changes due to rulings like Comcast Corp. v. Behrend

The date and time of the webinar is Tuesday, February 11, 2014:

1:00 p.m. to 2:00 p.m. Eastern Time

12:00 p.m. to 1:00 p.m. Central Time

11:00 a.m. to 12:00 p.m. Mountain Time

10:00 a.m. to 11:00 a.m. Pacific Time

Speakers: Lorie Almon, Gerald L. Maatman, Jr., and Ian Morrison

By Gerald L. Maatman, Jr. and Gina R. Merrill

It is no secret that class action plaintiffs often prefer a state forum, but since the passage of the Class Action Fairness Act of 2005 (“CAFA”), many class actions that would otherwise fail the test for federal jurisdiction have nonetheless been steered to federal court. Yesterday, in a unanimous opinion, the Supreme Court placed limits around the reach of CAFA jurisdiction in Mississippi ex rel. Jim Hood v. AU Optronics Corp., Case No. 12-1036 (U.S. Jan. 14, 2014), holding that lawsuits brought solely by states on behalf of their citizens are not “mass actions” within the meaning of the CAFA and are therefore not subject to removal under its jurisdictional provisions.

This is the second SCOTUS ruling of the CAFA. Last year, in Standard Fire Insurance Co. v. Knowles, 133 S. Ct. 1345 (2013), the Supreme Court rejected a common tactic by the plaintiffs’ bar of stipulating to damages of less than $5 million to avoid removal under the CAFA (and held that plaintiffs’ counsel cannot bind unnamed class members with such a stipulation to avoid federal removal). It was a decidedly employer friendly ruling.

Mississippi ex rel. Jim Hood v. AU Optronics Corp. tilts the other way.

Background

In in Mississippi ex rel. Jim Hood v. AU Optronics Corp., the State of Mississippi brought an action in state court against certain manufacturers of liquid crystal displays (“LCDs”) alleging price-fixing and other anticompetitive behavior.  Defendants removed to federal court, arguing that the CAFA’s provision for “mass actions” encompassed the suit and provided federal jurisdiction.  The CAFA defines a “mass action” to be “any civil action … in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact.”  28 U.S.C. §1332(d)(11)(B)(i). The district court agreed that the suit was a “mass action,” but nevertheless remanded to state court based on the CAFA’s general public interest exception.

The U.S. Court of Appeals for the Fifth Circuit reversed, holding that the public interest exception did not apply, but agreeing that the suit fell under the CAFA’s definition of “mass action.” The Fifth Circuit’s holding created a circuit split, as the Fourth, Seventh, and Ninth Circuits had previously held that similar lawsuits were not mass actions under the CAFA.

The Court’s Decision

In an opinion authored by Justice Sonia Sotomayor, the Supreme Court unanimously reversed and held that suits brought solely in the name of a state are not removable to federal court under the CAFA because they are not “mass actions” as defined by that statute. Slip. Op. at 1.

Justice Sotomayor framed the issue as a simple matter of textual interpretation. The CAFA defines “mass actions” to be suits of “100 or more persons,” and a suit in which a state is the only named plaintiff fails this definition. Defendants argued that as a practical matter the state represents more than 100 real parties in interest who are the ultimate beneficiaries of the claims, but the Supreme Court rejected this rationale, reasoning that “the statute says ‘100 or more persons,’ not ‘100 or more named or unnamed real parties in interest.’” Slip Op. at 6. The Supreme Court went on to explain that the CAFA later refers to these same 100 persons as “plaintiffs,” and the plain meaning of plaintiff is a party who brings a civil lawsuit, not “anyone, named or unnamed, whom a suit may benefit.” Slip Op. at 7-8.

The Supreme Court also recognized that the major concern of the CAFA was class actions, and the mass action provision was largely a “backstop” to prevent plaintiffs from evading the CAFA by bringing suit in the name of multiple plaintiffs rather than as a class action pursuant to Rule 23. The Supreme Court opined that if Congress had intended to provide federal jurisdiction for representative actions by states, it would have done so explicitly. Slip Op. at 11.

Implications

Given the increase in representative enforcement litigation by state attorneys general, corporate defendants should expect to defend more of these suits in state court. Indeed, the same plaintiffs’ attorneys who file class action suits are sometimes deputized by states to pursue these kinds of representative actions. The possibility of enjoying a state forum without the specter of removal will likely motivate plaintiffs’ attorneys to seek more opportunities to file on behalf of the state rather than pursue claims as Rule 23 class actions.

supreme-court-seal.pngBy Jason P. Stiehl and Jeffrey P. Swatzell

On May 28, 2012, the U.S. Supreme Court granted certiorari in Mississippi ex rel. Hood v. AU Optronics Corp., Docket No. 12-1036, a price-fixing case between the State of Mississippi and a number of electronics companies. The Supreme Court agreed to determine whether a state’s parens patriae action is removable as a “mass action” pursuant to the Class Action Fairness Act (“CAFA”) when the state is the sole plaintiff, and the claims arise under state law. The case will be heard and decided during the term beginning in October 2013.

Federal appellate courts are currently split on whether CAFA should apply to lawsuits filed by state attorneys general on behalf of state citizens. This issue is of significance to employers in workplace class action litigation, since interpretations of the CAFA is important to defense strategy in removal situations.

Background Of Mississippi ex rel. Hood v. AU Optronics Corp.

In March 2011, Mississippi’s Attorney General filed a complaint in Mississippi state court, on behalf of Mississippi consumers, alleging that defendants were price-fixing LCD panels. The lawsuit brought claims under the Mississippi Antitrust Act and the Mississippi Consumer Protection Act. Shortly after it was filed, defendants removed the case to federal court on the grounds that it was either a “class action” or a “mass action” under the CAFA. The district court granted Mississippi’s motion to remand, however, finding that although the case constituted a “mass action” under the CAFA, it fell into the “general public exception” to the CAFA’s mass action jurisdiction because the claims were asserted on behalf of the general public, and not on behalf of individual claimants. Defendants appealed. 

The Fifth Circuit’s Opinion

In November of last year, the Fifth Circuit reversed the district court’s remand order, agreeing with the electronics companies who argued that the lawsuit belonged in federal court and was removable under the CAFA. See Mississippi ex rel. Hood v. AU Optronics Corp., 701 F.3d 796 (5th Cir. 2012). In reaching its decision, the Fifth Circuit agreed that the case was a “mass action” within the meaning of the CAFA. According to the Fifth Circuit, the real parties-in-interest include not only the State of Mississippi, but also individual consumers residing in Mississippi. However, the Fifth Circuit determined that, because the claim was, at least in part, brought on behalf of individual consumers, the general public exception did not apply, and therefore that the CAFA mass action jurisdiction was proper. Its decision notwithstanding, the Fifth Circuit recognized that, by finding the general public exception inapplicable, it essentially read it out of the statue.

Circuit Split

Previously, three other courts of appeals addressed similar claims involving the same jurisdictional question, and held that they were not removable:

AU Optronics Corp. v. South Carolina, 699 F.3d 385 (4th Cir. 2012), petition for cert. filed, No. 12-911 (Jan. 23, 2013);

LG Display Co. v. Madigan, 665 F.3d 768 (7th Cir. 2011); and

Nevada v. Bank of America Corp., 672 F.3d 661 (9th Cir. 2011).

So while the Fourth, Seventh, and Ninth Circuits have found no federal jurisdiction in these circumstances, the Fifth Circuit in AU Optronics Corp. found federal jurisdiction as a CAFA mass action. In other words, cases involving the same claims and arising out the same conduct by the same defendants have been inconsistently resolved. Notably, the same question presented in currently pending before the Supreme Court in the certiorari petition filed in AU Optronics Corp. v. South Carolina.

Implications

The Supreme Court granted certiorari to ensure that federal jurisdiction over state parens patriae actions does not vary based on the location of the federal court to which the lawsuit may be removed. Furthermore, because the Fifth Circuit’s decision essentially prevents a state attorney general from bringing a parens patriae action in state court – even when the state is the plaintiff and the claims arise under state law – it is likely that the Supreme Court feels compelled to strike a balance between principles of federalism and state sovereignty with CAFA. The Supreme Court’s decision will serve as a barometer of its hostility toward class actions. When the CAFA was enacted in 2005, its goal was to give federal courts jurisdiction over lawsuits involving large numbers of plaintiffs, and since it was implemented, the Supreme Court has issued a number rulings that have made it harder and harder for plaintiffs’ lawyers to bring class actions, especially in state court. The decision in AU Optronics Corp., however, given its implication of issues of state sovereignty, could test just how far the Supreme Court is willing to go to guard against potential class action abuses.

Thumbnail image for SupremeCourt.jpgBy Gerald L. Maatman, Jr. and Jennifer A. Riley

Today, in its first significant class action ruling of 2013, Standard Fire Insurance Co. v. Knowles, No. 11-1450 (U.S. Mar. 19, 2013), the U.S. Supreme Court expanded the reach of the Class Action Fairness Act (“CAFA”) when it unanimously rejected plaintiff’s attempt to keep a class action in state court by stipulating that he would seek damages less than the CAFA’s $5 million amount-in-controversy requirement. Standard Fire is also the first CAFA ruling by the SCOTUS.

In a significant ruling for companies facing class actions, the Supreme Court held that plaintiff’s stipulation did not prevent removal to federal court because, prior to class certification, plaintiff lacked authority to bind absent class members. In so ruling, the Supreme Court closed a significant potential loophole and ensured that, consistent with the purpose of the CAFA, defendants can continue to remove major class actions to neutral federal courts.

We have recounted numerous efforts by the plaintiffs’ class action bar to “work around” the re-invigorated class certification requirements of Rule 23 in the wake of Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011) (read more here, here, here, here and here). Standard Fire deals another potential “work around” stratagem – avoiding federal court altogether – a significant blow by ensuring that defendants can remove appropriate cases to a forum where the applicability of Wal-Mart is certain.

Factual Background

In April 2011, plaintiff Greg Knowles filed a putative class action in Arkansas state court alleging that Standard Fire Insurance Company unlawfully failed to include a general contractor fee when it made certain homeowner’s insurance loss payments. Id. at 1-2. Plaintiff sought to certify a class of “hundreds, and possibly thousands” of similarly harmed Arkansas policyholders. Id. at 2. 

With his complaint, plaintiff stipulated that he and class members “will seek to recover total aggregate damages of less than five million dollars.” Id. Nevertheless, on May 18, 2011, relying on the CAFA’s jurisdictional provision, the company removed the case to federal district court. Id.

The district court remanded the case on the basis that, although the amount in controversy would have exceeded $5 million in the absence of plaintiff’s stipulation, in light of the stipulation, the amount fell beneath the CAFA’s threshold. Id. The Eighth Circuit declined to hear the appeal, but the Supreme Court granted defendant’s petition for a writ of certiorari. Id. at 2-3.

The Supreme Court’s Opinion

The Supreme Court held that plaintiff’s stipulation should not have made any difference in determining whether the case met the CAFA’s thresholds for removal.

The CAFA provides federal district courts with original jurisdiction to hear a class action if the class has more than 100 members, the parties are minimally diverse, and the amount in controversy “exceeds the sum or value of $5,000,000.” Id. at 3 (quoting 28 U.S.C. §§ 1332(d)(2), (5)(B).) The statute provides that district courts should determine whether they have jurisdiction by adding up the value of the claims of each person who falls within the class definition and determining whether the resulting sum exceeds $5 million. Id. 

The Supreme Court found plaintiff’s stipulation irrelevant for a simple reason: “Stipulations must be binding.” Id. In the stipulation he provided the district court, plaintiff did not speak for the class members he purported to represent because, before the class is certified, a plaintiff “cannot legally bind members of the proposed class.” Id. at 4. Thus, plaintiff failed to reduce the value of the putative class members’ claims. Id.

The Supreme Court recognized that, although a federal district court might find it simpler to value the amount in controversy using a stipulation, to ignore a non-binding stipulation “does no more than require the federal judge to do what she must do in cases without a stipulation and what the statute requires, namely, ‘aggregat[e]’ the ‘claims of the individual class members.’” Id. at 6 (quoting 28 U.S.C. § 1332(d)(6).)

The Supreme Court also distinguished cases involving individual plaintiffs. Although federal courts permit individual plaintiffs to avoid removal by stipulating that amounts at issue fall below the federal jurisdictional requirement, the “key characteristic” of those stipulations is that they are “legally binding on all plaintiffs.” That essential feature was missing here. Id. at 7.

Implications For Employers

Although Standard Fire did not arise in the employment context, the Supreme Court’s decision represents good news for employers facing workplace class actions. One purpose of the CAFA was to ensure a neutral federal forum, rather than certain plaintiff-friendly state courts, for litigating class actions. Consistent with that goal, the Supreme Court’s decision shuts down a potentially significant opportunity for forum shopping by the plaintiffs’ class action bar and ensures the continued availability of removal under the CAFA. 

House Of Reps.bmpBy Gerald L. Maatman, Jr. and Laura J. Maechtlen

This week the U.S. House Of Representatives Judiciary Sub-Committee on the Constitution and Civil Justice held a hearing on the subject of “Examination of Litigation Abuses.” Rep. Trent Franks (R, AZ), Chairman of the Sub-Committee, explained the purpose of the hearing as appropriate to ensure members of the Congress can understand the scope and nature of glaring dysfunctions in our litigation system before the committee considers any potential legislation. Not surprisingly, however, other members of the committee — including Ranking Member Rep. Jerrold  Nadler (D, NY), and Rep. John Conyers, Jr. (D, MI) — disagreed with the title assigned of the hearing itself, arguing that a “realistic understanding” of existing law would require a balanced view of the judicial system, recognition of the fact that some defendants are guilty of wrongdoing and may have some obligation to compensate plaintiffs, and that some public interest could be served through class action litigation.   

Following statements from Committee Members on their differing viewpoints on the scope and purpose of the hearing, the Committee then heard testimony from on the following topics, many of which raise important concerns for employers facing and litigating class actions.     

Cy Pres Settlement Awards

Theodore Frank, Adjunct Fellow at the Manhattan Institute Center for Legal Policy and as President for the Center for Class Action Fairness testified in his personal capacity regarding cy pres settlement awards, arguing that they are one of the leading ways for self-dealing class counsel to benefit themselves at the expense of the class. According to Frank, cy pres awards exacerbate existing conflicts of interest in the class action settlement context because class attorneys negotiate the class recovery and their own fee at the same time; thus, attorneys who do not adhere to their fiduciary responsibility to the class have an incentive to exaggerate class recovery to a court to maximize their fees through self-dealing and/or use of cy pres awards to inflate the overall settlement numbers upon which their fees are based.    

John H. Beisner, who testified on behalf of the U.S. Chamber Institute for Legal Reform (“ILR”), generally agreed with Frank, arguing that use of cy pres awards allow class counsel to justify big fees without having to craft settlements that deliver any direct benefit to those individuals actually injured by the defendant’s alleged misconduct. Because there is no indirect benefit to the class from the defendant’s giving the money to someone else, it is questionable whether most cy pres distributions effectuate the interests of the silent class members.

Frank proposed some ways to curb the abuse of cy pres awards, including:  

  • Limiting cy pres awards to circumstances in which direct distribution to individual class members is not economically feasible, or where funds remain after class members are given a full opportunity to make a claim.
  • Requiring that unclaimed funds in a class settlement escheat to the U.S. Treasury, rather than to a third party.
  • Reward contingent-fee attorneys solely for benefits going directly to the class, not for any percentage of a cy pres award.
  • If a cy pres settlement benefits the class attorneys directly or indirectly, that settlement should offset the attorneys’ fees.
  • Parties should be required to give notice to the class of who the cy pres recipients are, and whether there are relationships between the recipients and the parties, attorneys, and judge. 

Forum Shopping

Beisner argued that some federal courts have not fully embraced congressional intent when interpreting the Class Action Fairness Act of 2005, 28 U.S.C. Sections 1332(d), 1453, and 1711–1715, (“CAFA”) by: (1) broadly expanding federal jurisdiction over interstate class actions by imposing a “legal certainty” requirement for satisfying the CAFA’s amount-in-controversy threshold, and allowing plaintiffs to stipulate that they will not seek $5 million in damages and/or refusing to consider declarations submitted by defendants in support of removal notices;  (2) interpreting the CAFA’s “home-state” exception much more liberally than Congress intended; and, (3) by applying the “mass action” provision of the CAFA quite narrowly in rejecting removal jurisdiction for “mass” actions under the CAFA.

Elizabeth Milito, Senior Executive Counsel of the National Federation of Independent Business Small Business Legal Center also testified that forum shopping impacts small businesses. For example, a small business is harmed when it is named as a defendant in a case where the claim against the business is particularly weak, and the plaintiff’s apparent motive is to use the defendant as “body-shield” against invocation of federal jurisdiction. 

Third-Party Financing Of Litigation

Beisner testified that third party litigation financing (“TPLF”) generally falls into two broad categories: (1) consumer lawsuit lending, which typically involves individual personal-injury cases; and (2) investment financing, which includes investments in large-scale tort and commercial cases and alternative dispute-resolution proceedings. He testified that the latter type investments have negative impacts on civil justice because they increase the filing of questionable claims, change the traditional way litigation-related decisions are made, prolong litigation by deterring settlement, compromise the attorney-client relationship and diminish the professional independence of attorneys by inserting a new party into the litigation equation whose sole interest is making a profit on its investment. He further testified that there were several ways to curb these practices, including designation of a federal agency to oversee TPLF investors, enactment of statutory safeguards to avoid TPLF-related abuses, barring the use of TPLF in class actions, and amending the Federal Rules of Civil Procedure to address TPLF arrangements.

Additional Areas For Potential “Abuse” Highlighted By The Testimony  

The witnesses also raised some additional and interesting points regarding how various litigation “abuse” occurs in the class action context.  

Beisner testified that, following Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011), some courts are failing to undertake a “rigorous analysis” of the Rule 23 prerequisites to class certification, including recent decisions from the U.S. Courts of Appeals for the Sixth and Seventh Circuits. He further argued that another significant impetus for abusive aggregate litigation is the proliferation of arrangements under which state attorneys general hire outside counsel on a contingency basis to represent the state in civil litigation, arguing that these arrangements create an opportunity for unseemly liaisons between public enforcement officials and private, profit-motivated lawyers — but even more troubling — violate important constitutional rights of defendants, who find themselves facing lawsuits that combine the political power of the state and the financial power of deep-pocketed plaintiffs’ lawyers.

Milito testified that lawsuits create a climate of fear for America’s small businesses because they lack resources to defend litigation, and suffer incalculable psychological or financial costs defending them. Further, because there are financial incentives that encourage frivolous lawsuits, calculating attorneys know that they can often exact settlements from small businesses simply by holding the threat of a lawsuit over the business.

Finally, citing extensively to Seyfarth Shaw’s 2013 Workplace Class Action Litigation Report, Joanne Doroshow, President and Executive Director of the Center for Justice & Democracy at New York Law School, provided testimony supportive of class action litigation tools. She first testified that federal court budget reductions through sequestration, combined with chronically anemic state funding for courts, threaten access to justice for every American and put court petitioners, staff and judges in physical jeopardy. She further argued that numerous “incorrect” decisions from the U.S. Supreme Court have undermined consumer and plaintiffs access to justice, including the decision of AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1748 (2011), which – she argued – creates numerous problems for consumers, including inherent bias on the part of arbitrators who want repeat business from companies, and issuance of secretive decisions by arbitrators who are not required to have any legal training, nor required to follow the law. 

We will all have to wait to see whether the Sub-Committee holds additional hearings, and whether this testimony impacts consideration of potential future legislation impacting employers.  

District of Colorado Seal.jpgBy Courtney Bohl and Laura J. Maechtlen

In yet another case regarding the sufficiency of the EEOC’s pre-litigation conciliation efforts, Judge Marcia Kriger of the U.S. District Court for the District of Colorado recently cautioned the EEOC about “hiding the ball” during conciliation negotiations. In EEOC v. The Original Honeybaked Ham, No. 11-CV-02560 (D. Colo. Jan. 15, 2013), the Court found the EEOC’s pre-suit conciliation efforts unsatisfactory and limited the EEOC’s claims to only those identified during its conciliation negotiations. The Court also limited the number of individuals for whom the EEOC could seek relief to those sufficiently identified during conciliation, whether they were identified directly by name or identified as part of a group of which the EEOC specifically defined. This decision represents another helpful precedent for employers facing a recalcitrant EEOC during conciliation.

Background Of The Case

In EEOC v. The Original Honeybaked Ham, the EEOC filed suit on behalf of a class of female workers alleging sex discrimination and retaliation. The lawsuit stemmed from a charge of discrimination filed by Wendy Cabrera, a female who alleged she was harassed by a Manager, James Jackman, and terminated after complaining to District 8 Manager Donna Wagner-Rego and Human Resources Representative Michael Costello.

The EEOC investigated Caberea’s charge by interviewing three employees at the Highland Ranch store, and obtaining statements from two employees stating that Jackman had harassed them and other female employees. After the investigation, the EEOC issued a letter of determination and invited HBH to engage in conciliation.

The EEOC’s initial conciliation offer demanded monetary relief for Cabrera and eight other female employees who were subjected to Jackman’s allegedly harassing conduct. The EEOC also advised HBH that it would likely discover more victims if the case proceeded to litigation, but refused to identify any additional class members or provide any information about the scope of this unnamed class. Because the EEOC provided only nebulous information during conciliation, HBH was unable to assess its liability and declined to make a counter-offer.

After filing its initial complaint and despite only engaging in conciliation with respect to female employees subjected to Jackman’s conduct, the EEOC amended its complaint, broadening the scope of its claims to individuals subjected to Jackman’s conduct and/or the conduct of other supervisors and managers within District 8 under Human Resource Representative Costello’s oversight.

The parties subsequently reentered negotiations on the broadened claims. Predictably, the EEOC again refused to provide specific names of aggrieved parties or the scope of the potential class. As a result, HBH was unable to make a meaningful counter-offer and notified the EEOC that it wished to proceed with litigation.

In response to the EEOC’s amended complaint, HBH filed a motion to dismiss, seeking to: (1) limit the scope of the EEOC’s claims to claims arising from Jackman’s unlawful conduct and not of any other supervisor or manager; and (2) limit the available remedies to injuries suffered by Cabrera and the eight aggrieved individuals identified in the pre-litigation conciliation.

The Court’s Ruling

The Court agreed with HBH’s first argument and limited the EEOC’s claims of sex discrimination and retaliation to conduct by Jackman. Id. at 11. In doing so, the Court acknowledged that the EEOC is authorized to pursue claims of illegal conduct beyond what was alleged in the initial charge, so long as the additional conduct is discovered during the course of the charge’s investigation. Id. at 9. However, if the EEOC discovers additional wrongdoing, it must give notice of this wrongdoing to the employer and provide the employer an opportunity to conciliate on all charges before a lawsuit is filed. Id. The Court found that the EEOC failed to do so, focusing its negotiations on the unlawful conduct of Jackman. Id. at 10. Moreover, the Court flatly rejected the EEOC’s argument that it gave HBH informal notice by alleging retaliation by Wagner-Rego and Castello. Id.  at 11.

The Court also held that while the EEOC could pursue a remedy for those aggrieved individuals impacted by the conduct of Jackman, it could not do so for individuals affected by the conduct of other supervisors or managers. Id. at 15. HBH cited the Eighth Circuit’s decision in EEOC v. CRST (that we previously blogged about here) in arguing that relief could only be sought by the EEOC for aggrieved persons whose identities were disclosed in pre-litigation negotiations. Id. at 13. The Court rejected this categorical interpretation of EEOC v. CRST, finding that the amount of information required on the identities of potential class members should be viewed on more of a “sliding-scale.” Id. at 13-14. Thus, the greater specificity the EEOC gives in describing the alleged unlawful conduct, the less important it becomes for the EEOC to identify each aggrieved individual by name. Id. The Court reasoned that, if the employer is given information on the “extent, location, time period, and persons involved in the alleged unlawful conduct,” the employer would be able to reasonably estimate the number of individuals impacted. Id. at 14. Because the EEOC disclosed information about Jackman’s conduct at a specific retail store, HBH had sufficient notice of all individuals affected by Jackman’s conduct, but not individuals subjected to conduct engaged in by other supervisors. Id. at 15.

Implications For Employers

The U.S. District Court for the District of Colorado’s ruling joins a litany of recent rulings (here, here and here) that have similarly found the EEOC’s pre-litigation efforts unacceptable under Title VII’s framework. The ruling bars the EEOC from asserting claims not specifically identified during pre-suit litigation and prohibits the EEOC from seeking relief on behalf of individuals who the employer could not reasonably identify from the information provided by the EEOC. Although the Court refused to require the EEOC to identify all aggrieved individuals in its pre-suit negotiations, the Court did make clear that if the EEOC declines to name each individual, it must, at the very least, sufficiently identify an outline or definition of the class so the employer is on notice as to the extent of its liability. This case should be added to every employer’s “tool-box” of cases to use when faced with an EEOC investigation and lawsuit.

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