Class Action Litigation

By Andrew H. Perellis, Alex W. Karasik, and Patrick D. Joyce

Seyfarth Synopsis: In a toxic tort class action stemming from automotive and dry cleaning facilities’ alleged contamination of groundwater near Dayton, Ohio, the Sixth Circuit affirmed an Ohio federal district court’s grant to certify seven common issues for classwide treatment under Rule 23(c)(4). Shortly thereafter, the four Defendant companies filed a petition for a rehearing en banc, arguing that the Sixth Circuit misapplied Rules 23(b)(3) and 23(c)(4).

This ruling is important for businesses to have on their radar since it represents another federal appellate court relaxing the barriers to issue-class certification.

Case Background

In Martin et al. v. Behr Dayton Thermal Products LLC, et al, No. 17-3663 (6th Cir. 2018), the Plaintiff residents alleged that the company Defendants released volatile organic compounds and other hazardous substances into the groundwater beneath their properties. The complaint alleged eleven causes of action: (1) trespass; (2) private nuisance; (3) unjust enrichment; (4) strict liability; (5) negligence; (6) negligence per se; (7) battery; (8) intentional fraudulent concealment; (9) constructive fraud; (10) negligent misrepresentation; and (11) civil conspiracy. Id. at *4. Plaintiffs sought Rule 23(b)(3) class certification as to liability for five of their eleven causes of action—private nuisance, negligence, negligence per se, strict liability, and unjust enrichment. In the alternative, they requested Rule 23(c)(4) certification of seven common issues.

The District Court held although Plaintiffs’ proposed classes satisfied Rule 23(a)’s prerequisites, Ohio law regarding injury-in-fact and causation meant that Plaintiffs could not meet Rule 23(b)(3)’s predominance requirement. Id. Accordingly, the District Court denied certification of the two proposed liability-only classes. The District Court then addressed Plaintiffs’ alternate request for issue-class certification under Rule 23(c)(4), considering whether predominance constituted a threshold requirement that must be satisfied with respect to the entire action before a court may certify certain issues, Id. at 4-5. Noting that this question has resulted in a conflict between several other circuits, the District Court adopted the “broad view,” and rejected treating predominance as a threshold requirement and certified seven issues for class treatment. Id. at 5. The District Court concluded its class certification decision by stating that it would “establish procedures by which the remaining individualized issues concerning fact-of-injury, proximate causation, and extent of damages can be resolved” and noting that any such procedures would comply with the Reexamination Clause of the Seventh Amendment. Id.

Thereafter, Defendants filed a Rule 23(f) petition, arguing that the District Court reached the wrong conclusion on the interaction between Rules 23(b)(3) and 23(c)(4) and that, even under the broad view, the issue classes were insufficient. Defendants also raised Seventh Amendment arguments, citing the District Court’s mention of a potential procedure involving the use of a Special Master to resolve remaining issues. On appeal, the Sixth Circuit’s review was limited to the District Court’s decision to certify issue classes under Rule 23(c)(4). Id. at 6.

The Sixth Circuit’s Decision

The Sixth Circuit affirmed the District Court’s certification of issue classes under Rule 23(b)(3). As an initial matter, the Sixth Circuit explained that appellate courts across the country have disagreed about how Rule 23(b)(3)’s requirements interact with Rule 23(c)(4). Id. at 7. Under the “broad view,” which has been adopted by the Second, Fourth, Seventh, and Ninth Circuits, courts applied the Rule 23(b)(3) predominance and superiority prongs after common issues had been identified for class treatment under Rule 23(c)(4). Id. The broad view permits utilizing Rule 23(c)(4) even where predominance has not been satisfied for the cause of action as a whole. Id. (citations omitted). In contrast, the “narrow view,” adopted by the Fifth and Eleventh Circuits, prohibits issue classing if predominance has not been satisfied for the cause of action as a whole. Id. at 8 (citations omitted). Other circuits, including the Third and Eighth Circuits, have adopted a functional, superiority-like analysis instead of either view.

After evaluating the above approaches, the Sixth Circuit elected to adopt the “broad view” approach, holding (1) it does not risk undermining the predominance requirement since it instructs courts to engage in the predominance inquiry after identifying issues suitable for class treatment; (2) it flows naturally from Rule 23’s text, which provides for issue classing “[w]hen appropriate,” and (3) the concomitant application of Rule 23(b)(3)’s superiority requirement ensures that courts will not rely on issue certification where there exist only minor or insignificant common questions, but instead where the common questions render issue certification the superior method of resolution. Id. at 9. Accordingly, the Sixth Circuit held that a requirement that predominance must first be satisfied for the entire cause of action would undercut the purpose of Rule 23(c)(4) and nullify its intended benefits. Id. at 10.

Applying the “broad view” approach, the Sixth Circuit held that because each issue may be resolved with common proof and because individualized inquiries do not outweigh common questions, the seven issue classes that the district court certified satisfy Rule 23(b)(3)’s predominance requirement. Id. at 12. Further, regarding the superiority requirement, the Sixth Circuit held that the district court correctly noted that issue certification will ensure that property owners in the affected area will have an opportunity to litigate their claims, and that by trying these common questions to a single jury, this procedure also saves time and scarce judicial resources. Id. at 14. Accordingly, the Sixth Circuit held that the District Court did not abuse its discretion by certifying issue classes under Rule 23(c)(4) since the predominance and superiority requirements were met.

The Sixth Circuit also rejected the Defendants’ Seventh Amendment arguments, noting that the district court has not formalized any procedures for resolving either the common issues or the remaining individualized inquiries. Id. at 14-15. As such, the Sixth Circuit affirmed the District Court’s issue-class certification decision.

On July 31, 2018, the Defendant companies filed a petition for rehearing en banc, requesting that the entire appeals court reconsider Sixth Circuit’s affirmation of the District Court’s issue-class certification.

Implications For Businesses

For businesses located in states within the Sixth Circuit (Kentucky, Michigan, Ohio, and Tennessee) that are facing class action lawsuits, these companies must be cognizant that the Sixth Circuit has adopted the “broad view” of Rule 23, meaning it will be easier for plaintiffs to obtain certification of issue classes. This ultimately affords the plaintiffs’ class action bar some leverage in regards to expanding their cases and potentially increasing exposure.

From an environmental law perspective, harm to property or bodily injury, and the amount of compensation due, are almost always highly individualized and will predominate other issues. Under the “narrow view,” class actions for toxic tort actions would be inappropriate. However, under the “broad view,” the toxic tort class can proceed and litigate broad issues establishing the defendant’s release of contaminants and the extent of contamination. After the issues are resolved on a class-wide basis, mini-trials or alternate proceedings are needed to establish the individualized damages incurred by each class member. The broad view, now adopted by the Sixth Circuit, provides a plaintiff group with significant leverage against the allegedly polluting company because the contamination issues can be litigated as a class.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of Seyfarth’s Environmental Compliance, Enforcement & Permitting Team.

By: Noah A. Finkel, David S. Baffa, Daniel C. Whang, and Andrew L. Scroggins

Seyfarth Synopsis:  In one of the most significant employment cases in memory, a sharply divided United States Supreme Court held today that employers may require employees, as a condition of employment, to enter into arbitration agreements that contain waivers of the ability to participate in a class or collective action under various employment statutes.

There is no longer any reason under the law why an employer cannot require its employees to waive the ability to bring a class or collective action under federal, state, and local employment laws.

While there are certain exceptions (explained below), the United States Supreme Court today removed the last potential legal barrier to the enforcement of class waivers in the employment sphere.  In a 5-4 decision authored by Justice Neil Gorsuch, it held in three cases consolidated for review that requiring employees to agree to arbitration agreements with class waivers does not violate the National Labor Relations Act (“NLRA”) and that such agreements are fully enforceable.

The only foreseeable barrier to enforcement of a class waiver would be federal legislation amending the Federal Arbitration Act (“FAA”) or state legislation permitting private attorney general actions such as California’s Private Attorneys General Act (“PAGA”).  Employers who maintain mandatory arbitration programs with class waivers can be assured for the time being that those waivers provide a valid defense to a collective or class action.  Employers who do not have such arbitration programs need to be aware of this significant development in the employment law landscape and at least consider whether an arbitration program with a class waiver is appropriate for them.

Be aware, however, that a class waiver in an arbitration program does not mean the end of all multi-claimant litigation.  As those with operations in California know, employees who have entered into class waivers with their employers nevertheless may bring PAGA actions in that state.  Likewise, agency-initiated actions are not impacted, leaving the Department of Labor and the Equal Employment Opportunity Commission free to pursue relief under the statutes they enforce on behalf of employees regardless of whether those employees have entered into class waivers.  Meanwhile, some plaintiff-side attorneys have become skilled at bringing dozens of single-claimant arbitration matters against an employer at the same time, which might cost an employer more than defending a collective or class action in court.

An arbitration program with a class waiver isn’t necessarily for every employer.  But this ruling certainly will cause more employers to adopt arbitration programs with class waivers, and likely will reduce the number of class and collective actions employers face.

The Path Leading to the Decision

Beginning with its 2011 decision in AT&T Mobility v. Concepcion, the Supreme Court has blessed the validity and enforceability of class waivers in arbitration agreements.  This was followed by decisions in CompuCredit Corp. v. Greenwood and American Express Co. v. Italian Colors Restaurant, where the Supreme Court forged jurisprudence that made class waivers seem unassailable in the commercial context.  But because none of the cases involving class waivers before the Supreme Court were in the employment context, uncertainty existed as to whether class waivers in mandatory employment arbitration agreements were enforceable.

This uncertainty was amplified by the National Labor Relations Board’s 2012 decision in D.R. Horton, which rejected workplace class waivers.  In the Board’s view, class waivers prevent employees from engaging in protected concerted activity in violation of Section 7 of the NLRA.  The Board continued to press its view even after the Second, Fifth, and Eighth Circuits refused to enforce the rule.  Then in 2016, the Seventh Circuit created a circuit split with its decision in Lewis v. Epic Systems Corp., which held that the right to bring a class or collective action is protected concerted activity under the NLRA, and that class waivers violate that right.  The Sixth and Ninth Circuit followed the Seventh Circuit’s reasoning, deepening the split.

The Supreme Court granted cert in three cases to resolve the issue of whether employers who require employees to arbitrate claims on an individual basis are preventing employees from engaging in protected concerted activity in violation of the NLRA.  On October 2, 2017, the Supreme Court heard oral argument, and today it issued its decision in a split that is just as close as the circuit split below.

The Court’s Reasoning

The Supreme Court began with the premise that the Federal Arbitration Act (FAA) is unequivocal in its mandate that courts enforce arbitration agreements.  The Court’s majority decision rejected the argument that the NLRA overrides that command by rendering a class waiver unlawful.  In the majority’s view, Section 7 of the NLRA does not create a right to pursue a collective or class action.  Rather, Section 7 focuses on the right to organize unions and bargain collectively and does not mention  class or collective action procedures, the majority reasoned.

Section 7’s catch-all provision that employees  must be permitted to engage in “other concerted activities for the purpose of . . . other mutual aid or protection” does not protect the right to participate in a class action because it only protects activities similar to those explicitly listed in Section 7 and thus reaches only to “things employees do for themselves in the course of exercising their right to free association in the workplace.”

The majority supported its holding with other observations, including that: class and collective action procedures were “hardly known” in 1935 when the NLRA was passed; the NLRA states no rules on class or collective action, in contrast to the regulatory regime it imposes surrounding other concerted activities; and the collective action procedures under the Fair Labor Standards Act (“FLSA”) — the statute under which the employees’ underlying causes of action arise — is just like the collective action procedures under the Age Discrimination in Employment Act, which the Supreme Court previously has held does not prohibit mandatory individual arbitration.

At bottom, the Court’s majority was unwilling to infer a Section 7 right to a class or collective action based on “vague terms or ancillary provisions” that would “dictate the particulars of dispute resolution procedures in Article III courts or arbitration proceedings–matters that are usually left to, e.g., the Federal Rules of Civil Procedure, the Arbitration Act, and the FLSA.”

The reasoning of the majority, as articulated by Justice Gorsuch, is broader than some expected.  His majority opinion does not merely hold that between conflicting rights and interests of the FAA and NLRA, the FAA wins.  Rather, the majority suggests that there may not be any Section 7 right to pursue a collective or class action in the first place.  This raises the question of whether a collective or class action waiver that is not contained within an arbitration program may be enforceable.

The Dissent

As expected, Justices Ginsburg, Kagan, Sotomayor, and Breyer dissented in an opinion authored by Justice Ginsburg.  The dissent focused on the circumstances that are unique to the employment context, including what Justice Ginsburg refers to as the “extreme imbalance once prevalent in our Nation’s workplaces,” and the reasons Congress enacted the NLRA in the first place, to “place employers and employees on more equal footing.”  Of paramount importance was the NLRA’s recognition that an individual employee has unequal bargaining power against the employer, and that the right to engage in concerted activities levels the playing field.

In the dissent’s view, class and collective actions qualify as concerted activities because in these actions, employees band together to improve their working conditions by holding employers accountable for violations of employment law.

What Should Employers Do

Employers will undoubtedly be asking:  what does this decision mean for me?  The answer depends on many factors, and like arbitration agreements themselves, there is no one answer that fits all.

For employers that already maintain a mandatory arbitration agreement with a class waiver, the Supreme Court’s decision has minimal impact.  A well-drafted agreement that does not overreach will be enforced.  While there are no longer any barriers to enforcing mandatory class waivers, the Supreme Court’s decision will not save a poorly drafted arbitration agreement.  In many states, an arbitration agreement still can be found unenforceable if it is both procedurally and substantively unconscionable under state law principles.  Some courts in some states may find that an arbitration agreement that is mandatory in nature is procedurally unconscionable, which makes it imperative that there is nothing in the arbitration agreement that can be substantively unconscionable.

Employers that have a voluntary arbitration agreement with a class waiver should consider whether making the arbitration program mandatory could yield additional benefits.  If almost all employees participate in a voluntary arbitration program with a class waiver, the additional risk of a mandatory program – whether due to procedural unconscionability concerns or employee relations issues – may not outweigh the marginal benefit.  But if the number of employees who opt out of or refuse to sign a voluntary arbitration agreement with a class waiver is higher than an employer is comfortable with, a mandatory program should be considered.  This is particularly true for employers in the Ninth Circuit, which gave a hat-tip to the NLRA by permitting class waivers so long as employees could opt out of the arbitration agreement.  An opt-out procedure, however, is no longer required in light of the Supreme Court’s decision.

Employers that maintain arbitration programs without a class waiver should strongly consider revising their agreement to include a class waiver.  An arbitration agreement without a class waiver leaves open the worst possible outcome, which is class arbitration.  The potential exposure in any class action is too high to inject any uncertainty as to whether the parties intended to permit class arbitration or not.  And an employer may want a court, rather than an arbitrator with potential financial incentive, to decide whether the parties intended to permit class arbitration.  An express class waiver likely would avoid these issues.  If an employer has an arbitration agreement already in place, there is now no reason to omit a class waiver.

For everyone else who has been waiting for the Supreme Court’s decision before deciding what to do, there are various factors to consider.  The threshold question is whether to even have an arbitration program.  There are certainly many benefits to arbitration.  These include quicker resolution of claims, more predictable outcomes compared to a jury, arguably lower attorneys’ fees to take a case through completion in arbitration than in court, and greater chance of keeping the proceedings and outcome confidential.

But there also are numerous downsides to arbitration that employers have to consider.  Arbitrator fees can be very significant, and in states like California, the employer must pay all of the arbitrator fees.   Some plaintiffs’ attorneys have resorted to filing a large number of individual arbitrations to make the arbitration process exorbitantly expensive for employers.  Arbitrators also can be less likely to grant dispositive motions because they may feel a claimant has a right to take his or her claim through the evidentiary hearing (the equivalent of a trial in arbitration).

Another question is what the scope of the arbitration program should be.  Given the costs associated with arbitration, some employers may want to limit an arbitration program to just wage and hour claims, which have the greatest likelihood of being brought as class claims.  In addition, current federal and state legislative headwinds are pushing against mandatory arbitration of sexual harassment and other Title VII claims.  Certain Department of Defense contractors have long been banned from imposing such agreements, and the State of New York recently passed legislation that seeks to prohibit private employers from requiring arbitration of sexual harassment claims.  While state laws of this type are susceptible to preemption by the Federal Arbitration Act, federal bans have been proposed, and employers may wish to sidestep the controversy altogether by considering wage-hour only arbitration agreements.  In this way, discrimination claims, which usually are brought on a single-plaintiff basis, could then be excluded from the arbitration program if the additional costs associated with arbitration exceed the confidentiality benefit of arbitration.

Employers considering implementing an arbitration program also need to be aware of the various exceptions.  The FAA does not apply to certain employees, most notably transportation workers.  In California, PAGA representative actions are not subject to class waivers and cannot be arbitrated.  Complaints and charges filed with governmental agencies are not subject to arbitration agreements.

While there are many factors to consider, the Supreme Court’s decision today assures employers that arbitration agreements with class waivers remain a valuable option for employers interested in reducing potential class and collective action exposure.

*Seyfarth Shaw LLP is counsel for Epic Systems Corp. in the Lewis case at the district and appellate courts and is co-counsel for Epic at the Supreme Court.

By Gerald L. Maatman, Jr. and Thomas E. Ahlering

Seyfarth Synopsis:  As the number of class action lawsuits alleging violations of the Illinois Information Biometric Privacy Act (“BIPA”) has exploded in the last six months, defendants have been eagerly awaiting guidance from an Illinois appellate court regarding what a Plaintiff must allege in order to have a viable right of action under the statute. In Rosenbach v. Six Flags, 2017 IL App (2d) 170317 (Ill. App. Ct., Dec. 21, 2017), the Illinois Appellate Court for the Second District issued the first such ruling in this area, holding that a Plaintiff must allege an actual injury to be “aggrieved” under the Act in order to seek statutory damages and injunctive relief. 

The decision represents a significant victory for employers because defendants in both federal and state courts – facing potentially catastrophic damages under the statute for implementation of biometric technology for various purposes, including timekeeping practices – have made similar arguments that plaintiffs alleging mere technical violations of the statute are not “persons aggrieved,” thereby entitling plaintiffs to statutory damages and injunctive relief.  The decision in Rosenbach provides clarity as to the viability of certain potential employer defenses in BIPA class actions, particularly at the motion to dismiss stage.  Most notably, the decision will almost certainly serve to shift the tide in favor of employers facing BIPA class actions.

***

The Illinois Appellate Court’s Decision

In Rosenbach, Plaintiff, as the mother of her minor son, brought a class action on behalf of herself and all others similarly-situated, alleging that Defendants Six Flags Entertainment Corp. (“Six Flags”) and Great America LLC (“Great America”) violated the BIPA when her son purchased a season pass for Great America theme park and defendants fingerprinted him using a biometric scanner without obtaining written consent or disclosing their plan for the collection, storage, use, or destruction of his biometric identifiers or information.  Rosenbach,  2017 IL App (2d) 170317, *1.  Defendants moved to dismiss on the grounds that Plaintiff was not a “person aggrieved by a violation” of the BIPA as required by the statute in order for a Plaintiff to have a right of action because Plaintiff alleged mere technical violations of the statute.  Id. (quoting 740 ILCS 14/20).

The trial court denied the motion to dismiss, but later certified two questions for appellate review relating to whether a person aggrieved by a violation of the BIPA must allege some actual harm, including: (1) whether an individual is an aggrieved person under section 20 of BIPA and may seek statutory damages authorized under the BIPA when the only injury he or she alleges is a violation that a defendant collected his or her biometric identifiers and/or biometric information without providing him or her the disclosures and obtaining written consent; and (2) whether an individual is an aggrieved person under section 20 of the BIPA and may seek injunctive relief authorized under the BIPA when the only injury he or she alleges is a violation that a defendant collected his or her biometric identifiers and/or biometric information without providing him or her the disclosures and obtaining written consent.  Id. *3.

The Illinois Appellate Court answered both questions in the negative and held that a Plaintiff must allege an actual injury to be “aggrieved” under the Act.  In so holding, the Illinois Appellate Court analyzed the plain language of the statute and consulted various definitions of “aggrieved,” including Black’s Law Dictionary, to find that “there must be actual injury, adverse effect, or harm in order for [a] person to be ‘aggrieved.’”  Id.

It further noted:

Likewise, if the Illinois legislature intended to allow for a private cause of action for every technical violation of the Act, it could have omitted the word “aggrieved” and stated that every violation was actionable. A determination that a technical violation of the statute is actionable would render the word “aggrieved” superfluous. Therefore, a plaintiff who alleges only a technical violation of the statute without alleging some injury or adverse effect is not an aggrieved person under section 20 of the Act.

Id. *4.

In sum, the primary holding of the case is that “[i]f a person alleges only a technical violation of the Act without alleging any injury or adverse effect, then he or she is not aggrieved and may not recover under any of the provisions in section 20.”  Id. *5.

Analysis And Implications For Employers

The Illinois Appellate Court’s decision constitutes a significant victory for employers facing BIPA class actions.

Most notably, the Illinois Appellate Court held that a Plaintiff cannot proceed on a claim for either statutory damages or injunctive relief for mere technical violations of the statute.  This holding is key for employers because class actions brought under the BIPA frequently consist of cookie cutter complaints which merely allege technical violations of the BIPA (i.e., failure to obtain written consent, failure to maintain a “publically available” biometric privacy plan, and failure to provide notice of biometric retention and destruction policies) and not an actual injury (i.e., identity theft).

While the decision represents a significant decision at this juncture in favor of employers, we anticipate that the Plaintiffs’ class action bar will continue to attempt craft creative arguments to circumvent this ruling and find a way to argue that an individual is an “aggrieved person” for purposes of the BIPA.

Accordingly, employers should remain vigilant and ensure that they are in compliance with the BIPA’s requirements to ensure that a mere “technical” violation of the statute does not result in something which could constitute an actual injury entitling an individual to pursue statutory damages and injunctive relief.