Class Action Defense

A California judiciary committee struck down an "anti-Concepcion" bill, drafted in response to the US Supreme Court's decision in AT&T v. Concepcion, in which the court held that AT&T could requires its employees to arbitrate their issues individually.  Specifically, the California senate bill was drafted in February 2012 and, if enacted, would strike language from employee's contracts that waived the right to bring grievances against an employer in a class action suit. 

Supporters of the bills argued it would ensure workers the ability to form class actions and, as a result, would deter fraud.  Opponents argued that voiding such waiver language would dramatically increase litigation costs by encouraging class actions.

A Maryland federal judge recently ruled that the Supreme Court class action ruling in Wal-Mart v. Dukes does not bear on an FLSA overtime pay class action suit. The court conditionally certified the collective action, rejecting the argument that the Dukes ruling applies to all aggregate actions. The court stated that the court's holding in Dukes only bears on Rule 23 class actions and is not applicable to FLSA actions.

In Dukes, the Supreme Court held that classes cannot be certified when each class member would be entitled to different relief against a defendant.

At issue was a collective action suit against Wells Fargo, where in the company's loan officers were classified as exempt and were not paid overtime if and when they worked more than 40 hours a week, up until April 1, 2011, when their status was changed to nonexempt, according to the judge's ruling. Prior to the switch, the officers were paid on a "draw and commission" basis ranging from $1,000 to $5,000 per month depending on their performance. After, they were paid $12 an hour, plus net commissions.

 

The transportation industry has always been on the leading edge of interstate and international commerce.  Operating across multiple jurisdictions frequently entails thorny compliance issues.  A federal district court in California issued a ruling last week in a class action case that provides some welcome guidance for businesses in California whose employees work both inside and outside the state.  The issue in the case, Wright v. Adventures Rolling Cross Country, Inc., No. C-12-0982 EMC (N.D. Cal.), was whether employees of a California tour operator were covered by California’s wage and hour laws while working abroad.  Judge Chen of the Northern District of California held that while work performed inside California by a California resident is covered by the California Labor Code and its associated Wage Orders, work performed principally outside the state is not.  The Court accordingly dismissed all claims based on work performed outside California.  The decision is consistent with a prior ruling from the Central District of California in Sarviss v. General Dynamics Info Tech., Inc., 663 F.Supp.2d 883 (C.D. Cal. 2009).  While the decisions in Wright and Sarviss are helpful, we expect to see employees continue to claim that California’s wage and hour laws (and those of other states) apply extraterritorially.   We will continue to follow and report on developments here. 

A putative class action brought by former drivers against Performance Food Group, Inc. ("PFG") was dismissed with prejudice by a California federal judge.  The court held that the meal and rest break claims were preempted by the Federal Aviation Administration Authorization Act ("FAAA"), enacted in 1994 to preempt state trucking regulation and bars state laws related to the prices, routes or services of federally regulated motor carriers.  The dismissed class action is the second in several months, after a California federal court granted Penske Logistics LLC's motion for partial summary judgment, holding that the FAAAA trumped meal and rest break claims from a class of appliance delivery drivers and installers. In the PFG order, the court stated that the reasoning in Dilts v. Penske was persuasive.

 

The National Labor Relations Board ("NLRB") ruled on January 3, 2012, that employers may not force employees to sign arbitration agreements that waive (prohibit) class actions and class arbitrations over issues involving pay and other working conditions.  The decision seeks to distinguish the Supreme Court's ruling in AT&T Mobility v. Concepcion last April, which provided that the Federal Arbitration Act ("FAA") preempts state laws and court decisions that invalidate bans on class arbitration. 

The Board found that the FAA did not override the National Labor Relations Act, which provides workers the right to unionize and take part in joint action.  Specifically, the NLRB ruled that employers who force their employees to sign, “as a condition of employment, an agreement that precludes them from filing joint, class, or collective claims addressing their wages, hours, or other working conditions against the employer in any forum, arbitral or judicial,” are engaging in an “unfair labor practice” in violation of the National Labor Relations Act.

The decision will affect trucking and other transportation carriers in at least two ways.  Unionized carriers may now face the prospect of class (fleetwide) arbitration of grievances that a collective bargaining agreement might previously have limited to individual arbitration proceedings.  Carriers will want to review the wording of the grievance provisions in their collective bargaining agreements.

For non-unionized carriers, the NLRB decision provides an added reason to hesitate before requiring employee-drivers or contractors to sign agreements to arbitrate disputes.  Transportation carriers already miss out on the preemptive effect of AT&T Mobility to the extent their arbitration agreements are deemed to be contracts with transportation workers, which are expressly exempted from the FAA, the statute on which that Supreme Court decision was based.  Now the NLRB decision adds a possible federal-law basis on which employee-drivers – or contractors successful in persuading a court to reclassify them as employee-drivers – may try to argue a right to use a carrier’s arbitration agreement to institute a class arbitration.
    
The Board did not ban agreements that require employees to arbitrate in order to settle workplace issues, but held that such agreements must provide a way for workers to bring class or collective claims in court or arbitration.

In the Board decision, D.R. Horton, Inc. and Michael Cuda, Case 12-CA-25764 (Jan. 3, 2012), the respondent-home builder was ordered to stop “maintaining a mandatory arbitration agreement that waives the right to maintain class or collective actions in all forums, whether arbitral or judicial.”

The California Supreme Court announced this week that it will hold oral argument in the long-pending case of Brinker Restaurant Corp. v. Superior Court, No. S166350, on November 8, 2011. The Court's decision, which should be delivered any time between the date of the argument and early February, 2012 (the Court issues orders within 90 days of oral argument), is expected to clarify the obligations of employers under California's meal and rest break rules, which have spawned numerous individual and class action lawsuits against employers throughout California in and out of the transportation industry. Among other things, the California Supreme Court is expected to resolve the contentious question of whether California's requirement that employers "provide" employees with 30-minute off-duty meal breaks means that employers must ensure that employees take those breaks (the "ensure" standard), or that employers must make those breaks available, leaving employees with the discretion to take them at their option (the "provide" standard).

The Brinker lawsuit was filed in August 2004. After rulings on merits and class certification issues at the trial court level, the California Court of Appeal in 2008 approved the provide standard. The California Division of Labor Standards Enforcement (the “DLSE”) immediately sided with the Court of Appeals and adopted the provide standard. Numerous state and federal courts have likewise adopted the "provide" standard, although some have favored the "ensure" standard. In October 2008, the California Supreme Court vacated the decision of the Court of Appeals. The California Supreme Court's ruling in Brinker is expected to settle this long-standing dispute.

After eight years of legal proceedings, the Arizona Supreme Court has ruled that Swift truckers who claim that the company routinely shorts drivers for mileage may take their case to trial. The drivers claim that Swift uses an artificial calculation that results in drivers being paid for significantly fewer miles than they actually drive. The suit claims that by basing per-mile pay on mileages calculated by software rather than actual miles driven, Swift underpaid drivers by seven to ten percent. The class action case encompasses all drivers and owner-operators who worked for Swift since January 30, 1998.

The Supreme Court provided good news to transportation companies facing class action litigation today by issuing an opinion in the Wal-Mart v. Dukes case that reverses the Ninth Circuit Court of Appeals' class certification decision.  In a 5 to 4 ruling, the Court held that plaintiffs failed to demonstrate commonality under Rule 23(a)(2), and unanimously held that the back pay claims could not be properly certified under Rule 23(b)(2).  The decision will make it more difficult for plaintiffs to succeed in certifying class actions going forward.

This decision is a victory for any transportation company faced with a class action lawsuit, as the Court's decision ostensibly makes it more difficult for a putative class action to be certified going forward.  This is especially so in employment law class actions in which the plaintiff cannot point to a specific employment practice of the motor carrier or other transportation entity that violates the law, but rather relies on anecdotal evidence to satisfy the rigid requirements of Rule 23.  How this decision will affect other transportation class action cases such as those involving the Truth-in-Leasing Regulations is unknown at this juncture, but without proof of a class wide policy that violates the law the Wal-Mart case makes clear that certification will be difficult to obtain.

In Wal-Mart v. Dukes, the plaintiffs — a group of 1.5 million current and former Wal-Mart employees — claimed that while Wal-Mart had no express corporate policy against the advancement of women, Wal-Mart's decision to give managers discretion to make pay and promotion decisions  itself was a discriminatory policy.  That policy resulted in male employees earning more money than their female counterparts and holding a disproportionate number of leadership positions that could be proven on a class wide basis according to the plaintiffs.  Wal-Mart maintained that the class members’ claims are not similar enough to justify certifying them as a class, as the sheer number of class members and stores, along with variations in positions the plaintiffs held and differences in managers at each location militated against litigating the case on a class wide basis.

The Court agreed.  Focusing on the commonality prong of Rule 23, the Court mentioned that while the purported policy could possibly form the basis of a disparate impact claim under Title VII of the Civil Rights Act of 1964, it does not follow that every potential class member has a common claim as is required to proceed with a class action case.  To prove commonality under Rule 23, the plaintiff must demonstrate that each class member “suffered the same injury” according to the Court, which the plaintiffs could not do because the employment decisions complained of were admittedly left to the discretion of each store manager.  "Respondents wish to sue for millions of employment decisions at once,” Justice Antonin Scalia said. “Without some glue holding together the alleged reasons for those decisions, it will be impossible to say that examination of all the class members’ claims will produce a common answer to the crucial discrimination question.” Prior to this ruling, the commonality requirement of Rule 23 was often glossed over in any class certification analysis.  This decision establishes a roadmap for approaching this issue going forward and indicates a renewed focus on commonality is warranted in any class certification inquiry. 

The Court also held that a claim for monetary relief could not be certified under Rule 23(b)(2) when, as here, the monetary relief sought is not incidental to the requested injunctive or declaratory relief.  Rule 23(b)(2) applies when the party opposing the class has acted or refused to act on grounds that apply generally to the class so that final injunctive or declaratory relief is appropriate for the entire class.  The Court's ruling clarifies that Rule 23(b)(2) certification is only appropriate when a single, indivisible remedy would provide relief to each class member, and that when individualized monetary damages are appropriate such claims “belong in Rule 23(b)(3)”, which is arguably a more difficult certification standard to meet.

Finally, the Supreme Court also rejected plaintiffs' theory that back pay could be determined with a "Trial by Formula" calculation, i.e. that a sample of class members could be selected, and statistical modeling could yield a result for the entire class wide recovery without further individual proceedings. Such a method of calculating damages would violate the Rules Enabling Act according to the Court, as a class cannot be certified on the premise that an employer "will not be entitled to litigate its statutory defenses to individual claims."
With the renewed focus on the commonality prong of Rule 23 and the favorable findings regarding Rule 23(b)(2), the class action landscape is certainly more favorable to employers than before.  And while employers should be pleased with the decision, it does not provide a silver bullet to defeat class certification.  The bar for plaintiffs’ counsel to meet to certify a case however, has certainly been raised. 

The federal judge presiding over the FedEx Ground Package System Inc. (“FedEx Ground”) multidistrict litigation (“MDL”) ruled this week that classes of FedEx Ground drivers in numerous states are independent contractors, not employees. In re MDL-1700 FedEx Ground Package Sys. Inc., Employment Practices Litig., No. 3:05-MD-527 RM (MDL 1700) (N.D. Ind. Dec. 13, 2010) (“Dec. 13, 2010 Order”).   

The court’s decision comes on the heels of its August 11, 2010 ruling that a class of Kansas drivers are independent contractors, not employees, under the Kansas Wage Payment Act. See In re MDL-1700 FedEx Ground Ground Package Sys. Inc., Employment Practices Litig., No. 3:05-MD-527 RM (MDL 1700), 2010 WL 3239363 (N.D. Ind. Aug. 11, 2010) (“August 11, 2010 Order”).  Following that ruling, the Court instructed the parties to file supplemental briefing explaining whether the Court should reach the same result – on claims under the laws of other relevant States relating to overtime, business expense deductions from wages, late payment of wages, meal-and-rest breaks, and similar wage-related statutory and breach-of-contract claims – in the MDL’s many other collected cases in which similar summary judgment motions regarding drivers’ employee-vs.-independent-contractor status were awaiting decision. 

The MDL consists of numerous class action cases filed by drivers against FedEx Ground in courts around the country that were combined for coordinated pre-trial proceedings in the U.S. District Court for the Northern District of Indiana in 2005.  In general, the cases allege that FedEx Ground drivers were improperly misclassified as independent contractors, and that the drivers were therefore covered by state and federal laws applicable to employees.  Some of the cases also alleged violations of federal law, including the FLSA and the FMLA, and common law causes of action for breach of contract.  Eventually, at least 56 separate putative class actions from 40 states were transferred to the Northern District of Indiana as part of the MDL.  In 2008 and 2009, the MDL court certified some of the cases as class actions and declined to certify others.  The parties then proceeded to file summary judgment motions on the issue of the drivers’ employee-vs.-independent-contractor status.  The Court’s ruling this week represents the latest stage of the litigation.

In its August ruling in the Kansas case, the Court summarized its conclusion that drivers were independent contractors as follows:

The plaintiffs have all signed Operating Agreements labeling themselves as independent contractors, they can hire others to perform their assigned work and go work for another delivery company, and they can sell their routes to other qualified drivers; yet, they contend they are employees.  The court sees it differently. Upon review of the evidence in the light most favorable to the plaintiffs, the only reasonable inference is that FedEx hasn’t retained the right to direct the manner in which drivers perform their work. FedEx supervises the drivers’ work and offers numerous suggestions and best practices for performance of assigned tasks, but the evidence doesn’t suggest that FedEx has the authority under the Operating Agreement to require compliance with its suggestions. Further, other factors strongly weigh in favor of independent contractor status; in particular, the parties intended to create an independent contractor arrangement, the drivers have the ability to hire helpers and replacement drivers, they are responsible for acquiring a vehicle and can use the vehicle for other commercial purposes, they can sell their routes to other qualified drivers, and FedEx doesn’t have the right to terminate contracts at-will. Although some facts weigh in favor of employee status, after considering all the relevant factors, the court finds that the plaintiffs are independent contractors as a matter of law.

See Aug. 11, 2010 Ruling at 3.  In this week’s decision, the court repeated this same passage (beginning with “Upon review of the evidence…”).  See Dec. 13, 2010 Ruling at 11-12 (quoting Aug. 11, 2010 Ruling at 3). 

In the vast majority of states involved (AL, AZ, AR, CA, FL, GA, IN, KY, LA, MD, MN, NH, NJ, NY, NC, OH, OR, PA, RI, SC, TN, TX, UT, WV, WI, in addition to KS), the MDL court this week ruled that drivers were independent contractors under each respective state’s legal test. The Court’s detailed reasoning, state by state, is set forth on pages 18-176 of the decision.

The Court noted (at 4-5) that in arriving at both the Kansas decision and this week’s decision, it “has considered evidence common to the drivers’ relationships with FedEx on a nationwide basis:  the Operating Agreement [lease] and generally applicable Policies and Procedures.  As a condition of class certification, the court excluded particularized evidence of actual control between FedEx and the drivers. …These cases might or might not come out differently under a different procedural posture allowing wider scope for review of extrinsic and particularized evidence, but that situation is not before the court today.” 

The Court denied the plaintiffs’ request to give preclusive effect – that is, to treat as already having decided the issue – the California Court of Appeal’s decision in Estrada v. FedEx Ground Package System, Inc., 64 Cal. Rptr. 3d 327 (Cal. Ct. App. 2007) that a FedEx Ground Single Work Area (“SWA”) class of drivers were employees.  The Court stated (at 8): “The facts before the Estrada court and those before this court are dissimilar insofar as the facts available to this court don’t go beyond the Operating Agreement and generally applicable Policies and Procedures…. Also, the SWA class in Estrada was markedly different from the classes before this court because the MDL classes lump together SWA and MWA drivers.  Thus, though the parties litigated a right to control issue in Estrada, the issue decided in Estrada, isn’t identical to issue before this court.”

The Court also rejected the plaintiffs’ assertion that it viewed as dispositive the Operating Agreement’s indication that the parties intended to create an independent-contractor relationship.  The Court said (at 10) that “the intent factor weighed ‘strongly’ because the intent expressed in the contracts was so clear, not because the intent factor had special status or carried dispositive weight.”

The Court went on to declare (at 10-11, citations omitted) that “Most important in Kansas – and the most important under the common law and Restatement tests generally – is the right to control, which typically is the weightiest factor….  This court held that there was no reasonable inference that FedEx retained the right to control the methods and means of the drivers’ work on a class-wide basis. This finding came in light of the distinction between control of means and control of results.  In most states, control of results doesn’t indicate employee status; control of means used to achieve contracted-for results does indicate employee status.  Drawing the line between means and results is a challenging, highly contextual and fact-specific task.  Bright-line rules prove elusive here.  This court held that the controls reserved to FedEx were results-oriented:   FedEx provides work to and pays contractor-drivers to provide the specific result of timely and safely-delivered packages to FedEx customers.  The totality of the circumstances and review of all the relevant facts and factors led to this results-oriented conclusion.”

The Court further explained (at 11) that it “found the drivers’ entrepreneurial opportunities to be highly probative of independent contractor status.”

The drivers are expected to appeal the court’s ruling.  
 

On October 15, 2010, the Eleventh Circuit issued an opinion on rehearing in Cappuccitti v. DirecTV, Inc. (No. 09-14107) clarifying the jurisdictional requirements of the Class Action Fairness Act of 2005 (“CAFA”).  In a previous opinion, the Court had held that, “in a CAFA action originally filed in federal court, at least one of the plaintiffs must allege an amount in controversy that satisfies the current congressional requirement for diversity jurisdiction provided in 28 U.S.C. § 1332(a),” including that statute’s requirement that the value of the plaintiff’s claims exceed $75,000, exclusive of interest and costs.  611 F.3d 1252, 1256.  Because no individual named plaintiff had alleged damages in excess of $480, the Court concluded that the district court lacked jurisdiction to entertain the case. 

Both parties sought rehearing.  On rehearing, the panel abandoned its earlier interpretation of CAFA, concluding instead:  “There is no requirement in a class action brought originally or on removal under CAFA that any individual plaintiff's claim exceed $75,000.”  2010 U.S. App. LEXIS 21348, at *6.  Instead, under the CAFA, the complaint merely must allege that putative class contains at least 100 members and that the damages sought exceed $5 million on an aggregate basis.  Finding that those requirements were met, the Court reversed itself and held that the district court did in fact have jurisdiction over the plaintiffs’ claims under CAFA.

The DirectTV opinion highlights the uncertainty regarding what jurisdictional showing plaintiffs must make in order to properly assert claims under CAFA.  Defendants in CAFA cases should carefully evaluate whether plaintiffs actually meet the jurisdictional requirements under 28 U.S.C. § 1332(d).
 

Whether involved in class action defense, truck accident litigation, or cargo loss and damage claims, a recent order from a New York federal court will likely impact transportation litigation going forward.     

Six years ago, Judge Shira A. Scheindlin, of the Southern District of New York authored the Zubulake decision.  The Zubulake decision provided the basis for current law and rules regarding the discovery of electronically stored information (“ESI”).  Recently, Judge Scheindlin has issued another decision involving ESI that will likely be looked to by other courts when addressing similar issues: The Pension Committee of the University of Montreal Pension Plan, et al., v. Banc of America Securities, et al., 05-civ-9016, (S.D. N.Y. January 10, 2010)(as corrected on January 15, 2010)(collectively, the “Order”).

In her order entitled “Zubulake Revisited: Six Years Later,” Judge Scheindlin found that – although the case did not present any egregious examples of purposeful destruction of documents – the plaintiffs failed to timely institute written litigation holds and were careless and indifferent in their preservation and collection of documents after the duty of preservation arose.  Judge Scheindlin sanctioned the Plaintiffs, with an instruction to the jury allowing the jury to assume missing documents were bad for Plaintiffs, requiring Plaintiffs to pay certain attorney’s fees and costs to Defendant, and ordering Defendant to search backup tapes for additional information.

This case is interesting because most cases addressing discovery of ESI, particularly those awarding sanctions, involve egregious behavior.  The facts of this case, however, are much more pedestrian – a party that didn’t instruct all persons with electronic documents relating to a matter in litigation to preserve all those documents with a formal litigation hold letter; gathering relevant documents was largely left to operational employees without supervision; together with other factors that led the court to describe the party’s ignorance and indifference towards discovery (including the search for and preservation of electronic documents).

Courts have previously held that failure to instruct relevant employees to preserve documents constituted gross negligence.  Likewise, courts have previously held issuing a litigation hold memorandum and delegating the task of identifying relevant documents to operational level employees is not enough. 

However, this court clarifies that instructions to employees to provide the company’s counsel with relevant documents via phone, e-mail, a memorandum, and in a monthly litigation update are not sufficient to satisfy the duties of preservation and production – since the employees were not instructed to preserve all relevant documents and there was little supervision over the preservation and collection. 

The concepts forming the basis for the Order are not novel or new.  But because these concepts were used to justify an award of sanctions where there was no intent to destroy documents or other shocking behavior, and because the author of modern law on this subject spends 87 pages laying out the rules that justify these sanctions, it is increasingly likely other courts will follow suit.
 

The 7^th Circuit has implemented a pilot program (the “7^th Circuit Pilot Program”) designed to address the rising cost associated with the discovery of electronically stored information (“ESI”). In the initial stage of this pilot program a proposed Standing Order Relating to the Discovery of Electronically Stored Information has been created and will be used in select cases by certain judges within the district. 

The 7^th Circuit Pilot Program, like the recently amended Federal Rules of Civil Procedure, requires the parties to understand and discuss likely sources of discoverable ESI at the beginning of a case. At this time the parties are also required to discuss what ESI is to be preserved and anticipated issues relating to production of that information including the format of production and privilege issues. Unlike the Federal Rules, the pilot program requires litigants to consider and discuss whether discovery can be conducted in stages to minimize cost to the parties.

The pilot program’s initial report and proposed Standing Order Relating to the Discovery of Electronically Stored Information can be viewed at:

http://www.ilcd.uscourts.gov/Statement%20-%20Phase%20One.pdf

If your company is involved in trucking class action cases, truck accident litigation, cargo claims, or simply trying to collect your freight charges, it is important to understand the role of ESI, along with traditional paper documents, in litigation. The 7^th Circuit Pilot Program illustrates that courts, like litigants, are becoming more familiar with ESI and are addressing ESI issues both under the recently amended Federal Rules and via unique approaches like the 7^th Circuit Pilot Program. As businesses store more and more information electronically it is important to recognize that this information may be discoverable in litigation and have an organizational plan regarding storage of this information (who, where, when, how long), a procedure for disposing of outdated electronic information, and the ability to suspend disposal once litigation is reasonably anticipated. Although programs like the 7^th Circuit Pilot Program may ultimately help contain the rising costs associated with discovery of ESI, a company can reduce its litigation cost related to ESI significantly by taking steps in advance of litigation to understand and manage its stored data.