The class action plaintiffs’ bar celebrated yesterday’s Supreme Court’s decision in Tyson Foods, Inc. v. Bouaphakeo (pdf), rejecting Tyson’s challenge to class certification. One lawyer called it “a huge David v. Goliath victory.”

But when plaintiffs’ lawyers wake up this morning and focus on the details of the Court’s opinion, they are in for a serious post-celebration hangover.

The Court’s reasoning for the first time maps a clear route for defendants to use in challenging plaintiffs’ use of statistical evidence in class actions. It also provides important guidance for defendants about preserving the ability to challenge plaintiffs’ reliance on statistics.

Continue Reading What does Tyson Foods, Inc. v. Bouaphakeo mean for class actions?

Under Federal Rule of Civil Procedure 23(b)(3), a court may certify a suit for damages as a class action when “there are questions of law or fact common to the class” that “predominate over any questions affecting only individual members.” Similar certification standards apply when a plaintiff seeks to certify a collective action under the Fair Labor Standards Act (FLSA). Yesterday, in its highly anticipated decision in Tyson Foods, Inc. v. Bouaphakeo (pdf), the Supreme Court affirmed the certification of an FLSA collective action where the evidence tying class members together was a study of a representative sample of similarly situated workers.

Continue Reading Supreme Court affirms certification of FLSA collective action in Tyson Foods, Inc. v. Bouaphakeo

The Supreme Court on Tuesday heard oral argument in Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146, a case that has been closely watched for its potential to narrow the circumstances in which a class action may be certified under Federal Rule of Civil Procedure 23 and a collective action for unpaid wages certified under the Fair Labor Standards Act (FLSA). We previously described this case in prior blog posts. One of us attended the argument, and the other closely reviewed the transcript (pdf). Our combined reaction: The anticipated decision in this case may focus on an FLSA issue and, if so, then it seems unlikely to mark a sea change in the rules governing Rule 23 class actions. Continue Reading Supreme Court Hears Argument in Tyson Foods v. Bouaphakeo—and a Blockbuster Class Certification Ruling Seems Less Likely

A plaintiff hopes to represent a class to pursue two sets of wage-and-hour claims but runs into headwinds in the district court.  First, one set of claims disappears because his legal theory doesn’t withstand a motion to dismiss.  Then class certification is denied on what was left.  After that, the defendant— invoking Rule 68 of the Federal Rules of Civil Procedure—offers to settle “any liability claimed in this action.”  Under Rule 68, if the case goes to judgment and the plaintiff wins less than the offer, he would be liable for the defendant’s costs for any proceedings after the offer was made.

What is to be done?  The plaintiff in Sultan v. Medtronic, Inc. thought that he could simply accept the offer of judgment and associated payment and then proceed as if he hadn’t done so.  Forging ahead with an appeal of the partial dismissal and the denial of class certification, the plaintiff principally relied on a Ninth Circuit decision that permitted a settling plaintiff to appeal because the accepted offer lacked broad language addressing all claims—and in fact, during negotiations in that case, the parties had deleted an explicit reference to class claims.

Sometimes a settlement really is a settlement, however, and the Ninth Circuit held that this was one of those times.  Rejecting the plaintiff’s arguments that the Rule 68 judgment did not moot the class claims because they were not specifically identified in its terms, the court held (in an unpublished opinion) that a settlement of “any liability claimed in this action” was enough to end the entire case.  Along with my colleagues John Zaimes and Ruth Zadikany, I was counsel for Medtronic on this appeal.

Today is Halloween, an occasion when our thoughts turn to jack o’lanterns, ghosts, and zombies.  We are particularly fascinated by zombies—the dead returned to life. But we’re not the only ones.  In a decision earlier this week, a majority of the National Labor Relations Board voted to reanimate the dead.

The Board’s zombie of choice?  Its decision nearly three years ago in D.R. Horton (pdf), in which the Board sought to push back on arbitration agreements that require individual arbitration rather than class or collective actions.  As our readers know by now, most courts have accepted the Supreme Court’s clear and emphatic message that the Federal Arbitration Act protects the right of contracting parties to agree to resolve any disputes through arbitration on an individual basis.  But the NLRB, which hears complaints alleging unfair labor practices, came to a different conclusion in D.R. Horton, concluding that individual arbitration interferes with the right of employees to engage in “concerted activities” under Section 7 of the National Labor Relations Act— and that its interpretation of the NLRA trumps the FAA.  Yet, for reasons we—along with many other critics—have discussed, that approach gets it exactly backward.  The Supreme Court has held that the FAA takes precedence in the absence of a contrary congressional command.  Nothing in the NLRA itself (as opposed to the Board’s own policy views) evinces a clear congressional command to override the FAA.  And the Board itself cannot override a congressional enactment like the FAA.

For these reasons, the Board’s D.R. Horton ruling has been rejected by almost every court to consider it: by the Fifth Circuit (on direct review), by the Second Circuit, by the Eighth Circuit, by more than a dozen federal district courts, and— most recently— by the California Supreme Court.

But the Board, rather than acquiescing in the face of this avalanche of judicial authority, has sought to resurrect it.  Earlier this week, by a 3–2 vote, the Board issued its decision in Murphy Oil USA (pdf), reaffirming D.R. Horton and rejecting the views of the courts.  The Board dismissed most of the contrary authority in cavalier fashion—disparaging the Second and Eighth Circuit’s decisions for their “abbreviated” analysis, and refusing to engage with the California Supreme Court’s decision or any federal district court decision because those courts don’t typically exercise direct review over Board decisions.

As for the Fifth Circuit’s decision, the Board complained that the court gave “too little weight to [Board] policy” and that “[t]he costs to Federal labor policy imposed by the Fifth Circuit’s decision would be very high.”  But this assessment simply underscores the error in the Board’s ways:  An agency’s general policy views, no matter how strongly felt, cannot override the powerful congressional mandate favoring the enforcement of arbitration agreements that is embodied in the FAA.  And even though the Board has authority to set policy under the NLRA, the Board’s view of what the FAA requires is not entitled to any weight at all, because Congress has never given the agency authority to interpret or administer that statute.

In response to the Fifth Circuit’s legal analysis, the Board did little more in Murphy Oil than repeat its view— resting on nothing more than the Board’s say so in D.R. Horton— that the right to engage in “concerted activities” under Section 7 includes an unwaivable substantive right to class-action procedures.  But nothing in the text of the NLRA commands or even suggests that result.  Although the Board purported to find an “inherent conflict” between the NLRA and the FAA, the purported conflict in fact arises only from the Board’s questionable interpretation of the NLRA, not from anything inherent in the statute itself.  At bottom, the Board’s position rests on its own view of federal labor policy, not any congressional command, and an agency’s views cannot override what Congress enacted in the FAA.  (Moreover, as the Fifth Circuit pointed out, the agency’s insistence that the purported right to class-action procedures is a nonwaivable substantive right under the NLRA is questionable even on its own terms.)

The Board’s decision will not be the last word on this matter.  As in D.R. Horton, this latest decision is subject to direct review by a federal court of appeals, which will be free to reject the Board’s position and deny enforcement of its order.  Given the weight of judicial authority rejecting D.R. Horton and the Board’s failure to respond to that authority in a convincing manner, the Board’s position will likely continue to be met with skepticism in the courts.  For now, however, employers that use arbitration agreements with their employees may face possible challenges from the Board or from employees seeking to pursue class or collective actions.  In short, the D.R. Horton zombie will continue to stalk the land for the immediate future.

There seem to be two prevailing conceptions of class actions.  In one view, a class action is a way of determining many similar claims at once by evaluating common evidence that reliably establishes liability (and lays a ground work for efficiently calculating damages) for each class member.  That is, the class device produces the same results as individual actions would, but more efficiently.  In the other view—one we consider misguided—a “class” of plaintiffs complaining about similar conduct can have their claims determined through statistical sampling even if no common evidence will provide a common answer to common factual or legal questions. Instead, this theory holds, the results of mini-trials can simply be extrapolated to the entire class, even if individual results would vary widely.

Last week, the Ninth Circuit took a step deeper into the second camp in Jimenez v. Allstate Insurance Co. (pdf), delivering a ringing endorsement of statistical sampling as a way to establish liability as well as damages.

In ERISA stock-drop class actions, plaintiffs routinely allege that their employers breached a duty of prudence by permitting employees to invest their retirement assets in their company’s stock.  Until today, defendants typically defended against such claims by invoking a judicially crafted presumption that offering company stock was prudent.  Today, in Fifth Third Bancorp v. Dudenhoeffer, No. 12-751 (pdf), the Supreme Court rejected that presumption.

But all hope is not lost for stock-drop defendants.  Much of the work previously done by the presumption of prudence will now be done by the substantive requirements of the duty of prudence.  The Court offered guidance as to what plaintiffs must demonstrate to survive a motion to dismiss—and the standards suggested by the Court will not be easy to satisfy.

As a starting point, fiduciaries who administer retirement plans governed by the Employee Retirement Income Security Act (ERISA) owe a duty of prudence to plan participants.  See 29 U.S.C. § 1104(a).  To comport with that duty, fiduciaries are generally required to “diversify[] the investments of the plan so as to minimize large losses, unless under the circumstances it is clearly prudent not to do so.”  Id. § 1104(a)(1)(C).  But because Congress wanted to encourage employees to invest in their own companies, it waived the duty of prudence “to the extent it requires diversification” for fiduciaries of an “employee stock ownership plan” (ESOP).  Id. § 1104(a)(2).

Several federal courts of appeals had inferred from this exemption that an ESOP fiduciary’s decision to hold or buy employer stock should be presumed prudent, and that the fiduciary could not be held liable unless the company was in such dire financial straits that its viability as a going concern was in doubt.  In today’s unanimous opinion by Justice Breyer, the Court held that ERISA’s text provides no presumption—in particular, although Section 1104(a)(2) expressly exempts ESOP fiduciaries from the duty of prudence, to the extent that duty requires diversification, it makes no reference to any special presumption.

Having resolved the question presented, the Court proceeded to “consider more fully one important mechanism for weeding out meritless claims, the motion to dismiss for failure to state a claim,” and explained how, in light of the substance of the duty of prudence, motions to dismiss should be assessed.

The Court effectively ruled out stock-drop claims based on publicly available information, invoking its two-day-old decision in Halliburton Co. v. Erica P. John Fund, Inc. (pdf) (previously discussed on the blog), in which the Court opined that investors may reasonably rely on the market to incorporate public information into a stock’s price.  For circumstances in which fiduciaries are alleged to possess nonpublic information that suggests it was imprudent to hold company stock, the Court held that “a plaintiff must plausibly allege an alternative action that the defendant could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.”  The Court emphasized that ERISA fiduciaries cannot be required to trade on insider information in violation of the securities laws.  And the Court cast doubt on other theories sometimes offered by ERISA stock-drop plaintiffs—that fiduciaries should have ceased making new investments in company stock or disclosed the previously nonpublic information.  The Court noted that ERISA’s requirements must be in harmony with “the complex insider trading and corporate disclosure requirements imposed by the federal securities laws” and the objectives of those laws, and indicated that ERISA’s fiduciary breach requirements do not require plan fiduciaries to take actions that “would do more harm than good to the fund by causing a drop in the stock price and a concomitant drop in the value of the stock already held by the fund.”

The Court’s decision fundamentally reconfigures the landscape for ERISA stock-drop class actions.  Although the rejection of the presumption of prudence is likely to result in more suits against retirement plan fiduciaries, the Court’s substantive guidance arms class-action defendants with potent defenses that can be invoked at the motion-to-dismiss stage.  The main issue left open by the Court—when, if at all, fiduciaries must act on nonpublic information—will be litigated extensively in the lower courts, and may ultimately percolate back up to the Supreme Court again.

Suppose that you’re a trial court considering a motion for class certification.  And suppose that the parties present you with two competing statutory interpretations.  One legal standard permits the case to be adjudicated with common evidence.  And the other standard would require  individualized inquiries.  What should you do?  Should you decide what the law is and then see whether the putative class claims can be tried in a single trial?

The surprising answer of the California Court of Appeal is in Hall v. Rite Aid Corp. (pdf) is “No.”  Hall appears to conclude that commonality and predominance need not be established under the correct substantive legal standards.  Rather, if the plaintiffs propose a legal standard dispensing with individualized inquiries, the very question whether that standard applies is a common issue supporting class certification.

Hall is another decision in a growing series of “suitable seating” cases addressing a California Industrial Welfare Commission Wage Order that requires employers to provide employees with “suitable seats when the nature of the work reasonably permits the use of seats.” The plaintiffs in Hall—cashier-clerks who divided their time between check-out counters, stockrooms, and sales floors—construed the Order to require seats to be provided to every employee for every task where providing seats would be reasonable. In particular, the plaintiffs contended that Rite Aid had a duty to provide a seat to any employee who worked at a check-out counter for any period of time, even if for much of that time the employee would not be able to perform the job while sitting.  Rite Aid, in contrast, contended that the duty to provide a seat depended on the employee’s duties as a whole, so that the Order would not require providing a seat to an employee working at a check-out counter if the employee worked mostly at tasks where seating was inappropriate, or if check-out duties would not allow the employee to sit most of the time.  Thus, under plaintiffs’ legal theory, any failure to have a seat at a check-out counter was a violation requiring no further inquiry, while under Rite Aid’s theory such a failure would violate an employee’s rights only under certain, largely individualized circumstances.

Agreeing with Rite Aid’s view of the substantive law, the trial court decertified a class.  The San Diego-based Court of Appeal reversed.  In its view, the disputed legal elements of the plaintiffs’ claim were themselves common legal issues supporting class certification.  According to that court, deciding exactly what the law required the plaintiff had to prove in common was an impermissible predetermination of the action’s merits, and thus fell afoul of the California Supreme Court’s decision in Brinker Restaurant Corp. v. Superior Court.

True, Brinker had disapproved a “free-floating inquiry into the validity of the complaint’s allegations” at the class certification stage.  Yet the California Supreme Court also recognized that when “legal issues germane to the certification inquiry bear as well on aspects of the merits, a court may properly evaluate them”; indeed, [t]o the extent the propriety of certification depends on disputed threshold factual or legal questions, a court may, and indeed must, resolve them.”

It seems to me that, when one interpretation of a Wage Order would require resolution of myriad individualized issues, and the other interpretation would permit the same issues to be resolved in common, the “propriety of certification” under Brinker would depend on the correct legal standard.  Not so, according to the Hall court, which viewed the very dispute over the legal standard as a common issue supporting class certification.

The Hall opinion would seem to allow a plaintiff to obtain class certification simply by advancing a theory of liability that omits inherently individualized elements such as causation and injury, on the ground that the validity of the plainly erroneous legal theory could be determined on a class-wide basis.  And the Hall approach raises significant unanswered questions.  The opinion suggests that defendants—especially employers whose policies are challenged—should want threshold legal questions to be decided after class certification so that the entire class is bound by the result.  But if class counsel is wrong about the legal theory, and in fact the legality of the employer’s policy depends on individual circumstances, does the entire class lose because the class plaintiff’s overbroad theory fails, even though some or even many class members would have valid claims under the proper, more individualized standard?  That might create adequacy and due process problems, elevating the interests of the class-action lawyers over those of their clients.  But if determination of the legal issue on a class basis instead simply results in decertification of the class, allowing new actions under the correct theory, then it makes no sense to defer the decision as to what, exactly, plaintiffs must prove through common evidence.

The issue surfaced indirectly in the California Supreme Court’s recent unanimous decision in Duran v. US Bank NA (pdf), which we recently discussed.  Duran rejected the use of questionable statistical sampling that swept away individualized issues and defenses in a wage-and-hour class action.  The Court’s evaluation of the class-certification and trial-management issues hinged on a view of the governing law under which an employee’s exempt status under the overtime laws hinged on whether the employee actually spent more than half-time carrying out duties that were exempt (there, sales outside the employer’s facility).  Justice Liu’s concurring opinion suggested a possible legal test—different from the Court’s view—that would turn on the employer’s reasonable expectations about the balance of exempt or nonexempt activity within a particular job classification, not on the employees’ actual work practices. If that test correctly stated the obligation, Justice Liu suggested, the application of the exemption could be determined as a common issue without the need for statistical sampling. Hall raises the troubling possibility that a litigant could seek to avoid individualized issues by restating the governing legal test along the lines of Justice Liu’s concurrence in Duran, and then claim that the choice between Justice Liu’s formulation and the formulation adopted in the Court’s opinion itself was a common issue of law.   In my view, such an approach would be inconsistent with Duran and Brinker.

 

The Supreme Court makes its biggest headlines when it wades into the biggest issues of the day. But the Supreme Court also maintains a substantial docket of seemingly small—but ultimately important—technical questions.

In recent years, the Court has been particularly interested in defining precisely when an hourly employee is on and off the clock. For example, earlier this term, the Court held in Sandifer v. United States Steel Corp. that employers need not compensate certain workers for time spent donning and doffing safety gear. The Court will answer a related question next term. Yesterday, the Court granted certiorari to decide whether end-of-shift security screenings to prevent theft are compensable time under the Fair Labor Standards Act, as amended by the Portal-to-Portal Act.

Although such screenings may take only a matter of minutes, when aggregated over the course of a two-year limitations period for numerous employees, the damages exposure can be substantial. That explains why a series of nationwide back-pay class actions have been filed in the wake of the Ninth Circuit’s decision that time spent in security screenings must be compensated.

The Supreme Court will now review that decision in Integrity Staffing Solutions, Inc. v. Busk, No. 13-433. The legal issue is whether security screenings are “integral and indispensable” to employees’ “principal activities” or merely “preliminary” or “postliminary” to those activities. Under the Ninth Circuit’s view, security screenings are compensable because the task is necessary to the employees’ work and done for the benefit of the employer. But the Second Circuit has described security procedures as “modern paradigms of the preliminary and postliminary activities described in the Portal-to-Portal Act.”

Integrity Staffing is likely to be among the first cases heard when the Court reconvenes after its summer recess. Until then, expect the wave of related class actions to continue.

In recent years, one of the hottest types of collective actions against employers under the Fair Labor Standards Act (“FLSA”) is what is commonly called a “donning and doffing claim”—a lawsuit for unpaid wages for time employees spent changing clothes for work, such as putting on uniforms, safety gear, and the like. In a recent decision, Sandifer v. United States Steel Corp. (pdf), No. 12-417, the Supreme Court unanimously clarified the rules for these collective actions.

One of the major fights in donning and doffing suits is over the meaning of a key provision of the FLSA that exempts employers from having to compensate employees for off-the-clock “time spent in changing clothes … at the beginning or end of each workday” (29 U.S.C. § 203(o)) if a collective bargaining agreement so provides. Many agreements do exactly that.

Nonetheless, parties have litigated for years over what activities are exempt under Section 203(o). The plaintiffs’ bar typically takes a very narrow view of what constitutes “changing clothes” under the statute. The Court’s decision today takes a far more practical view of the statute. Sandifer makes clear that time spent donning or doffing protective gear that is (1) designed and used to cover the body and (2) commonly regarded as an article of dress—including hard hats, protective jackets, and protective coverings for the arms and legs—is exempt if the employees’ collective bargaining agreement so provides. In addition, minimal time spent putting on or removing other protective gear (such as safety glasses and earplugs) during this time is likewise exempt. Sandifer is therefore likely to reduce the number of circumstances that would allow plaintiffs to succeed in bringing donning-and-doffing lawsuits under the FLSA.

We provide more details about the decision in Sandifer after the jump.
Continue Reading Do Employers Have To Pay Unionized Workers For Time Spent Donning and Doffing Safety Gear? Supreme Court Says No.