Employer’s Use of Non-Compliant Disclosure Form Did Not Result in Concrete Injury Under Fair Credit Reporting Act

A job applicant alleging a violation of one of the procedural requirements of the Fair Credit Reporting Act (FCRA) lacked standing to sue under Article III of the United States Constitution because he failed to allege facts showing he suffered a concrete injury in fact, apart from the alleged statutory violation itself, the U.S. Court of Appeals for the Seventh Circuit has ruled unanimously, applying the U.S. Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016). Groshek v. Time Warner Cable, Inc., No. 16-3355; Groshek v. Great Lakes Higher Education Corp., No. 16-3711 (7th Cir. Aug. 1, 2017).

Background

The FCRA requires that before an employer may obtain a consumer background report on an employee or job applicant, the employer must give the person a “clear and conspicuous” written disclosure that a background report may be obtained. The disclosure must be “in a document that consists solely of the disclosure.” This is known as the “stand-alone disclosure” requirement. In addition, the person must give written consent authorizing the employer to obtain the background report.

In May 2016, the Supreme Court decided Spokeo, which involved a different provision of the FCRA. The Supreme Court held that to have standing to sue under Article III, a plaintiff must have suffered a “concrete” injury apart from the underlying statutory violation itself. (For details of Spokeo, see our article, Supreme Court: ‘Actual Injury’ Needed to Establish Standing to Sue for Violations of Fair Credit Reporting Act.) Spokeo has been applied to actions, typically class actions, brought under many different statutes, including the FCRA. Courts applying Spokeo in FCRA stand-alone disclosure cases, such as Groshek, are divided on the standing question. Decisions dismissing cases for lack of standing presently outnumber approximately two-to-one decisions that find standing.

Facts

Groshek involved appeals from two district court decisions holding the plaintiff lacked standing under Spokeo. In each case, Cory Groshek had received and signed a disclosure and authorization form before the employer obtained a background report on him. Groshek brought class actions alleging that the disclosure and authorization forms he received and signed did not comply with the FCRA’s stand-alone disclosure requirement because they contained extraneous information, including a release of liability. Groshek did not allege, nor could he have, that the inclusion of extraneous language confused him or that he would have done anything differently had the form complied with the FCRA by not including the extraneous language. Groshek and the alleged class sought to recover statutory damages (not actual damages), which can range from $100 to $1,000 per person for willful violations of the FCRA.

Relying on Spokeo, the defendant-employers moved to dismiss the cases for lack of standing. The district courts granted the motions and dismissed each of the cases. Groshek appealed those decisions to the Seventh Circuit, which consolidated the appeals.

Seventh Circuit’s Opinion

The issue before the Seventh Circuit was whether the statutory violation alleged by Groshek (the Court assumed, but did not decide, the legal sufficiency of Groshek’s claim) constituted a “concrete” injury within the meaning of Spokeo. Groshek contended that he suffered two types of concrete injuries: an informational injury and a violation of his right of privacy. Writing for a unanimous panel of the court, Judge William J. Bauer rejected both of Groshek’s arguments and affirmed the district court decisions.

The Court began its analysis by considering the purpose of the FCRA’s disclosure and authorization requirements. It stated that the stand-alone disclosure requirement “is clearly designed to decrease the risk of a job applicant unknowingly providing consent to the dissemination of his or her private information,” and that the authorization requirement further protects consumer privacy by giving the person the right to withhold consent. The Court then reasoned that the statutory violation alleged by Groshek was not tied to the concrete harm that the FCRA sought to protect against, because (a) the disclosure that he received did inform him that a background report may be obtained, and (b) there was no allegation that the extraneous language confused him or “caused him not to understand the consent he was giving.”

In rejecting his claim of an informational injury, the Court distinguished the two Supreme Court cases relied upon by Groshek, Federal Election Commission v. Akins, 524 U.S. 11 (1998), and Public Citizen v. Department of Justice, 491 U.S. 440 (1989). In those cases, the plaintiffs sought to compel the government to disclose information that the government was statutorily required to disclose. In contrast, Groshek was not seeking to compel the employers to provide him with any information, and he therefore suffered no informational injury. The Court also held that Groshek did not suffer a concrete privacy injury, because he had knowingly signed the disclosure and authorization form allowing the employer to obtain a background report.

The Court concluded by distinguishing the decision in Syed v. M-I, LLC, 853 F.3d 492 (9th Cir. 2017), an FCRA stand-alone disclosure case in which the Ninth Circuit held that the plaintiff had standing under Spokeo. The disclosure form in Syed contained a liability waiver similar to those in the disclosure forms at issue in Groshek. However, the Syed court characterized the allegations in that case, and reasonable inferences therefrom, as alleging that the plaintiff was “confused” by the inclusion of the liability waiver and, further, that the plaintiff “would not have signed it” in the absence of the liability waiver. The Seventh Circuit found Syed to be “inapposite,” because, “[u]nlike the plaintiff in Syed, Groshek presents no factual allegations plausibly suggesting that he was confused by the disclosure form … or that he would not have signed it had the disclosure complied” with the FCRA.

Implications

The Seventh Circuit is the second Court of Appeals to decide the question of whether a plaintiff alleging a violation of the FCRA’s stand-alone disclosure requirement has standing. The Ninth Circuit in Syed reached the opposite result. The Groshek opinion likely will be more influential than Syed among district courts, however. First, the standing analysis in Groshek is more thorough than was the Ninth Circuit’s analysis in Syed, which was only two paragraphs long. Also, the Ninth Circuit’s rationale is much narrower, because it is based on the Ninth Circuit’s reading of the plaintiff’s complaint as alleging he was confused by the inclusion of the liability release language and would not have consented to the background check had that language not been there. In our experience, few, if any, plaintiffs would be able to credibly (and truthfully) make such an allegation. And if the existence of an injury in fact turned on whether the named plaintiff was confused by the inclusion of extraneous language in the disclosure, that could turn the standing inquiry into an individual determination, thereby making class certification inappropriate under the predominance requirement of Rule 23 of the Federal Rules of Civil Procedure.

Illinois Class Actions Spark New Attention For Biometric Data Applications

Capturing the time employees’ work can be a difficult business. In addition to the complexity involved with accurately tracking arrival times, lunch breaks, overtime, etc. across a range of federal and state laws (check out our Wage and Hour colleagues who keep up on all of these issues), many employers worry about “buddy punching” or other situations where time entered into their time management system is entered by a person other than the employee to whom the time relates. To address that worry, some companies have implemented biometric tools to validate time entries. A simple scan of an individual’s fingerprint, for example, can validate that individual is the employee whose time is being entered. But that simple scan can come with some significant compliance obligations, as well as exposure to litigation as discussed in a recent Chicago Tribune article.

The use of biometrics identifiers still seems somewhat futuristic and high-tech, but the technology has been around for a while, and there are already a number of state laws addressing the collection, use and safeguarding of biometric information. We’ve discussed some of those here, including the Illinois Biometric Information Privacy Act which is the subject of the litigation referenced above. Notably, the Illinois law permits individuals to sue for violations of the law and, if successful, can recover liquidated damages of $1,000 or actual damages, whichever is greater, along with attorneys’ fees and expert witness fees. The liquidated damages amount increases to $5,000 if the violation is intentional or reckless.

For businesses that want to deploy this technology, whether to time management, physical security, validating transactions or other purposes, there are a number of things to be considered. Here are just a few:

  • Is the company really capturing biometric information as defined under the applicable law? New York Labor Law Section 201-a generally prohibits the fingerprinting of employees by private employers. However, a biometric time management system may not actually be capturing a “fingerprint.” According to an opinion letter issued by the State’s Department of Labor on April 22, 2010, a device that measures the geometry of the hand is permissible as long as it does not scan the surface details of the hand and fingers in a manner similar or comparable to a fingerprint. So it is important to understand the technology and, specifically, the exact type of information being captured.
  • How long should biometric information be retained? A good rule of thumb – avoid keeping personal information for longer than is needed. The Illinois statute referenced above codifies this rule. Under that law, biometric identifiers and biometric information must be permanently destroyed when the initial purpose for collecting or obtaining such identifiers or information has been satisfied or within 3 years of the individual’s last interaction with the entity collecting it, whichever occurs first.
  • How should biometric information be accessed, stored and safeguarded? Before collecting biometric data, companies may need to provide notice and obtain written consent from the individual. This is the case in Illinois. As with other personal data, if it is accessible to or stored by a third party services provider, the company should obtain written assurances from its vendors concerning such things as minimum safeguards and record retention.
  • Are you ready to handle a breach of biometric data? Currently, 48 states have passed laws requiring notification of a breach of “personal information.” Under these laws, the definitions of personal information vary, and the definitions are not limited to Social Security numbers. A number of them include biometric information, such as Connecticut, Illinois, Iowa and Nebraska. Accordingly, companies should include biometric data as part of their written incident response plans.

The use of biometrics is no longer something only seen in science fiction movies or police dramas on television. It is entering mainstream, including the workplace and the marketplace. Businesses need to be prepared.

Certification of Alleged Misclassified Bakery Distributors Denied due to Predominance of Individualized Issues

Class certification would have been granted in Soares v. Flowers Foods, Inc., 3:15-cv-04918 (N.D. Cal., June 28, 2017), but for the allegedly misclassified independent contractors’ decision to deliver, or not deliver, the goods themselves.

In Soares, the named plaintiffs sought to represent a class of truck drivers who were paid to distribute baked goods manufactured by Flowers Foods.  Plaintiffs filed suit in October 2015, alleging that Flowers Foods misclassified them as independent contractors and failed to reimburse them for business expenses, failed to provide meal or paid rest periods, and made improper deductions from their compensation, among other things. The distributors all signed a Distributor Agreement that purported to establish an independent contractor relationship and set forth details about how the baked goods must be distributed.  The distributors claimed that they were actually employees, not independent contractors, and asserted violations of California wage and hour laws.

Magistrate Judge Corley ruled that the four requirements to certify a class pursuant to Fed. R. Civ. P. (“FRCP”) 23(a) were met: (1) typicality, (2) commonality, (3) numerosity, and (4) adequate representation.

However, Judge Corley denied class certification pursuant to FRCP 23(b)(3) because in the substantive independent contractor/employee misclassification analysis, the individual issues clearly predominated over the common issues. In California, the common law test to distinguish between employees and independent contractors focuses on the purported employer’s “right to control the manner and means of accomplishing the result desired,” S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations, 48 Cal.3d 341, 350 (1989).  Thus, Judge Corley found the “right to control” was subject to common proof under the Distributor Agreement.

However, S.G. Borello also set forth nine secondary factors to determine an employment relationship.  One of the nine factors was so “riddled with individualized inquiries,” that it predominated over the common issues, namely, “whether the individual performing services is engaged in a distinct occupation or business from the alleged employer.”  Judge Corley evaluated the class members’ business operations, such as whether they contracted with other companies besides the alleged employer, or hired sub-drivers to do the work, to determine whether the distributors were engaged in distinct work from each other or the alleged employer.  The Court found a wide variety of business arrangements among the distributors, in whether they also provided delivery services for other companies, or hired sub-drivers to perform their routes.  For example, Judge Corley stated there would need to be “mini-trials” into the distributors’ recollections of how often they personally serviced their routes, and when and how often, if at all, they provided distribution services for other companies. These factual questions of whether the distributors were engaged in the same, or distinct business from the alleged employer, were ultimately too individualized for common resolution, thus defeating class certification.

New York Appeals Court Rejects Enforceability of Class Action Waivers – But Is This Ruling Short-Lived?

In an issue of first impression in the state of New York, last week the New York Supreme Court, Appellate Division (the state’s intermediate appellate court) weighed in on the enforceability of arbitration provisions that preclude employees from pursuing claims on a class, collective or representative basis. The appeals court concluded that such provisions are in violation of the National Labor Relations Act and therefore are unenforceable. Gold v. New York Life Insurance Co., 2017 N. Y. App. LEXIS 5627 (N.Y. App. Div. July 18, 2017).  In so holding, the court of appeals sided with the federal U.S. Courts of Appeal for the Sixth, Seventh and Ninth Circuits. NLRB v. Alternative Entertainment, Inc., 858 F.3d 393 (6th Cir. 2017); Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016); Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016).

However, as the appeals court noted, an equal number of federal U.S. Courts of Appeal have held that such class/collective action waiver provisions do not violate the NLRA and instead are consistent with the purposes of the Federal Arbitration Act (FAA). Cellular Sales of Missouri, LLC v. NLRB, 824 F.3d 772 (8th Cir. 2016); D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013); Murphy Oil Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015); Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2nd Cir. 2013).

Will this state appellate ruling have any long-lasting practical effect? That depends, for as the appeals court noted, “[i]n all likelihood, the United States Supreme Court will resolve this circuit split in due course.”  In fact, the Supreme Court has agreed to take up the matter, granting certioriari in a consolidated manner in Murphy Oil, Lewis and Morris.  The potential outcome of the appeal became even more interesting when, just over a month ago, the Office of the Solicitor General, on behalf of the Trump administration, reversed its Obama-era position and filed an amicus brief supporting the enforceability of class/collective action waiver provisions.  Notably, just last week the Supreme Court set oral argument for October 2, 2017, the first day of the Court’s upcoming session.  Thus, no later than the spring of 2018, we expect this issue to be resolved.

Murphy Oil Case Scheduled for Oral Argument

In January, the United States Supreme Court granted certiorari in National Labor Relations Board v. Murphy Oil USA, Case No. 16-307, Epic Systems Corp. v. Lewis, Case No. 16-285 and Ernst & Young LLP v. Morris, Case No. 16-300, consolidating them for argument.  The U.S. Supreme Court is expected to resolve the circuit split over whether an arbitration agreement that requires an employee to waive his or her right to bring or participate in a class action violates the National Labor Relations Act.  The Court’s decision will have major implications on class and collective actions going forward.  Jackson Lewis represents Murphy Oil in the case.

We recently posted that the Department of Justice (DOJ) filed an amicus curiae brief in support of the employers, taking a position opposed to the NLRB.

The consolidated cases were just scheduled for oral argument before the Supreme Court on October 2, 2017.  Although DOJ already filed its brief, the NLRB has not.  We will continue to monitor for the Board’s filing.

Jackson Lewis Class Action Trends Report Summer 2017 Now Available

Below is a link to the latest issue of the Jackson Lewis Class Action Trends Report.  This report is published on a quarterly basis by our firm’s class action practice group in conjunction with Wolters Kluwer.  We hope you will find this issue to be informative and insightful.  Using our considerable experience in defending hundreds of class actions over the last few years alone, we have generated another comprehensive, informative and timely piece with practice insights and tactical tips to consider concerning employment law class actions.

Jackson-Lewis_Whitepaper_Summer 2017

Department of Justice Changes Stance on Class Action Waivers in Favor of Employers

In a fascinating turn of events, the United States Department of Justice (“DOJ”) switched sides in a critical pending Supreme Court case last Friday. The three consolidated cases—National Labor Relations Board v. Murphy Oil USA, Case No. 16-307, Epic Systems Corp. v. Lewis, Case No. 16-285 and Ernst & Young LLP v. Morris, Case No. 16-300—have been closely watched as the Supreme Court is expected to resolve a growing circuit split over whether an employment contract that requires an employee to waive his or her right to bring or participate in a class action violates the National Labor Relations Act (“NLRA”).  The NLRA protects employees’ rights to engage in concerted activity concerning wages, hour and working conditions.  Employers are increasingly relying on such waivers, which are an effective way to avoid costly class action litigation.  To read a more in-depth analysis of this pending case, click here. Jackson Lewis represents Murphy Oil before the Supreme Court.

Under the Obama Administration, the government had defended the NLRB’s position that class action waivers violated the NLRA and were unenforceable. Now, under President Trump, the DOJ has reversed course.  In an amicus curiae brief filed on Friday, DOJ expressly acknowledged that it had “previously filed a petition…on behalf of the NLRB, defending the Board’s view” that class action waivers were unenforceable, but stated that “[a]fter the change in administration, the [DOJ] reconsidered the issue and has reached the opposite conclusion.”

Of course the change does not guarantee that the Supreme Court will agree with DOJ. It does, however, appear to make that outcome more likely – especially given the recent appointment of Justice Gorsuch to the Court, breaking an ideological stalemate. To read more on Justice Gorsuch’s judicial philosophy, click here.

Stay tuned for more on this important issue affecting the workplace law landscape!

 

Supreme Court: Plaintiffs May Not Voluntarily Dismiss Case to Appeal Class Certification Decision

Plaintiffs may not voluntarily dismiss their class action claims upon receiving an adverse class certification decision and subsequently invoke 28 U.S.C. § 1291, the general rule that appeals can be taken only from a final judgment, to appeal the decision as a matter of right, the U.S. Supreme Court has ruled. Microsoft Corporation v. Baker, No. 15-457 (June 12, 2017).

Background
In this case, the plaintiffs were denied Rule 23(f) permission to appeal the district court’s refusal to grant class certification. Rather than pursuing their individual claims to final judgment on the merits, the plaintiffs stipulated to a voluntary dismissal of their claims “with prejudice,” but reserved the right to revive their claims if the Court of Appeals reversed the district court’s certification denial. Microsoft stipulated to the dismissal, but maintained that respondents would have “no right to appeal” the order striking the class allegations after thus dismissing their claims.  The U.S. Court of Appeals for the Ninth Circuit, in San Francisco, relying on Berger v. Home Depot USA, Inc., 741 F.3d 1061 (9th Cir. 2014), accepted the plaintiffs’ appeal and reversed the district court’s decision rejecting class-based adjudication. The Ninth Circuit stated that “in the absence of a settlement, a stipulation that leads to a dismissal with prejudice does not destroy the adversity in that judgment necessary to support an appeal” of a class certification denial. Therefore, the Ninth Circuit, after reviewing the district court’s decision, ultimately held that the lower court had abused its discretion in striking the plaintiffs’ class allegations. (For a full summary of the procedural history or an analysis of the Supreme Court oral argument, please see our article, Supreme Court Hears Argument on Appellate Jurisdiction after Denial of Class Certification.)

Question is Jurisdiction
The Supreme Court agreed to review the case to resolve a circuit conflict over the following question: Do federal courts of appeals have jurisdiction under § 1291 and Article III of the Constitution to review an order denying class certification (or, as here, an order striking class allegations) after the named plaintiffs have voluntarily dismissed their claims with prejudice?

Going Too Far
Justice Ruth Bader Ginsburg, writing for a court majority (that included Justices Anthony Kennedy, Stephen Breyer, Sonia Sotomayor, and Elena Kagan), stated that the plaintiffs’ voluntary-dismissal tactic “invites protracted litigation and piecemeal appeals.” Stressing that the final judgment rule (now codified in § 1291) preserves the proper balance between trial and appellate courts, minimizes harassment and delay that would result from repeated interlocutory appeals, and promotes the efficient administration of justice, the majority found the plaintiffs’ attempt to secure appeals as of right from adverse class-certification orders stretched § 1291 too far.

The Court concluded that because the device subverted the final-judgment rule and the process Congress has established for refining that rule and for determining when nonfinal orders may be immediately appealed, the majority of the Court found the plaintiffs’ tactic did not give rise to a “final decision” under § 1291.
While the plaintiffs maintained that their position promoted efficiency (because after dismissal with prejudice, the case is over if the plaintiff loses on appeal) the Court disagreed. It found the plaintiffs overlooked the prospect that plaintiffs with weak merits claims will readily assume the risk in order to leverage class certification for a hefty settlement.

Additionally, the majority was concerned that if plaintiffs’ voluntary dismissal tactic was allowed, Rule 23(f)’s careful calibration — as well as Congress’ intent behind the rule — would be “severely undermined.” Further, the plaintiffs’ theory would permit only plaintiffs, and never defendants, to force an immediate appeal of an adverse certification ruling.

Accordingly, the majority did not find it appropriate to disturb the rulemaking process carefully selected by Congress to govern in this context. The judgment of the Ninth Circuit was therefore reversed, and the case remanded for further proceedings consistent with the Court’s opinion.

Concurrence
The concurrence, led by Justice Clarence Thomas (joined by Chief Justice John Roberts and Justice Samuel Alito) agreed with the majority that the Court of Appeals lacked jurisdiction over the plaintiffs’ appeal, but would have grounded that conclusion in Article III of the Constitution, instead of 28 U.S.C. § 1291.

Justice Thomas reiterated that the judicial power of the United States extends only to “cases” and “controversies,” which limits the jurisdiction of the federal courts to issues in which the parties maintain an “actual” and “concrete” interest. Here, he stated, the plaintiffs’ appeal from their voluntary dismissal did not satisfy this jurisdictional requirement. Once the plaintiffs asked the district court to dismiss their claims, they consented to the judgment against them and disavowed any right to relief from Microsoft. The parties, thus, were no longer adverse to each other on any claims and the Court of Appeals could not “affect the[ir] rights” in any legally cognizable manner.
***

While this decision is not surprising, a different outcome would have had severe consequences for companies defending against class actions. Microsoft issued a statement praising the decision, commenting, “This case was about following procedural rules that Congress established and that work for everyone. No party should be able to do an end-run around these rules and have rights that the other party doesn’t get. We’re grateful to the Supreme Court for its time and consideration of this issue.”
For more information or to discuss the potential implications of this ruling, please contact the Jackson Lewis attorney with whom you regularly work.

UNANIMOUS SUPREME COURT DECISION IN FAVOR OF “CHURCH PLAN” DEFENDANTS

Today, the Supreme Court handed a long-awaited victory to religiously affiliated organizations operating pension plans under ERISA’s “church plan” exemption. In a surprising 8-0 ruling, the Court agreed with the Defendants that the exemption applies to pension plans maintained by church affiliated organizations such as healthcare facilities, even if the plans were not established by a church. Justice Kagan authored the opinion, with a concurrence by Justice Sotomayor.  Justice Gorsuch, who was appointed after oral argument, did not participate in the decision.  The opinion reverses decisions in favor of Plaintiffs from three Appellate Circuits – the Third, Seventh, and Ninth.

For those of you not familiar with the issue, ERISA originally defined a “church plan” as “a plan established and maintained . . . for its employees . . . by a church.”   Then, in 1980, Congress amended the exemption by adding the provision at the heart of the three consolidated cases.  The new section provides: “[a] plan established and maintained . . . by a church . . . includes a plan maintained by [a principal-purpose] organization.”  The parties agreed that under those provisions, a “church plan” need not be maintained by a church, but they differed as to whether a plan must still have been established by a church to qualify for the church-plan exemption.

The Defendants, Advocate Health Care Network, St. Peter’s Healthcare System, and Dignity Health, asserted that their pension plans are “church plans” exempt from ERISA’s strict reporting, disclosure, and funding obligations.  Although each of the plans at issue was established by the hospitals and not a church, each one of the hospitals had received confirmation from the IRS over the years that their plans were, in fact, exempt from ERISA, under the church plan exemption because of the entities’ religious affiliation.

The Plaintiffs, participants in the pension plans, argued that the church plan exemption was not intended to exempt pension plans of large healthcare systems where the plans were not established by a church.

Justice Kagan’s analysis began by acknowledging that the term “church plan” initially meant only “a plan established and maintained . . . by a church.” But the 1980 amendment, she found, expanded the original definition to “include” another type of plan—“a plan maintained by [a principal-purpose] organization.’”  She concluded that the use of the word “include” was not literal, “but tells readers that a different type of plan should receive the same treatment (i.e., an exemption) as the type described in the old definition.”

Thus, according to Justice Kagan, because Congress included within the category of plans “established and maintained by a church” plans “maintained by” principal-purpose organizations, those plans—and all those plans—are exempt from ERISA’s requirements. Although the DOL, PBGC, and IRS had all filed a brief supporting the Defendants’ position, Justice Kagan mentioned only briefly the agencies long-standing interpretation of the exemption, and did not engage in any “Chevron-Deference” analysis.  Some observers may find this surprising, because comments during oral argument suggested that some of the Justices harbored concerns regarding the hundreds of similar plans that had relied on administrative interpretations for thirty years.

In analyzing the legislative history, Justice Kagan aptly observed, that “[t]he legislative materials in these cases consist almost wholly of excerpts from committee hearings and scattered floor statements by individual lawmakers—the sort of stuff we have called `among the least illuminating forms of legislative history.’” Nonetheless, after reviewing the history, and as she forecasted by her questioning at oral argument (see our March 29, 2017 Blog, Supreme Court Hears “Church Plan” Erisa Class Action Cases), Justice Kagan rejected Plaintiffs’ argument that the legislative history demonstrated an intent to keep the “establishment” requirement.  To do so “would have prevented some plans run by pension boards—the very entities the employees say Congress most wanted to benefit—from qualifying as `church plans’…. No argument the employees have offered here supports that goal-defying (much less that text-defying) statutory construction.”

In sum, Justice Kagan held that “[u]nder the best reading of the statute, a plan maintained by a principal-purpose organization therefore qualifies as a `church plan,’ regardless of who established it.”

Justice Sotomayor filed a concurrence joining the Court’s opinion because she was “persuaded that it correctly interprets the relevant statutory text.” Although she agreed with the Court’s reading of the exemption, she was “troubled by the outcome of these cases.”  Her concern was based on the notion that “Church-affiliated organizations operate for-profit subsidiaries, employee thousands of people, earn billions of dollars in revenue, and compete with companies that have to comply with ERISA.”  This concern appears to be based on the view that some church-affiliated organizations effectively operate as secular, for-profit businesses.

 Takeaways:

 Although this decision is positive news for church plans, it may not be the end of the church plan litigation.  Numerous, large settlements have occurred before and since the Supreme Court took up the consolidated cases, and we expect some will still settle, albeit likely for lower numbers.

In addition, Plaintiffs could still push forward with the cases on the grounds that the entities maintaining the church plans are not “principal-purpose organizations” controlled by “a church.”  If you maintain a church plan, reach out to us with any concerns about the impact of, and your ability to rely on, this decision.

Timing Is Everything: District Court in New York Approves CAFA Removal Two Years After Case Filing

In a somewhat unusual ruling, a New York federal court denied an unpaid intern’s attempt to remand a putative wage-hour class action against Oscar de la Renta to state court even though the case was removed to federal court under the Class Action Fairness Act (“CAFA”) approximately two years after the case was filed.

CAFA

Under CAFA, federal courts have jurisdiction over class actions if the defendant establishes “a reasonable probability” that the class has more than 100 members, the parties are minimally diverse, and the amount in controversy exceeds $5 million. Specific, enumerated exceptions to CAFA include the “local controversy” and the “home state” exceptions.  Generally, under both exceptions, the federal court cannot assert jurisdiction over class actions that involve “local” parties and controversies (i.e., involving parties and controversies from the forum state).

Removal After Two Years Considered Timely

Principle to the Court’s finding was a rejection of Plaintiff’s argument concerning timeliness.  Plaintiff argued that notice of removal was untimely since it was filed more than 30 days after the employer could have determined that the amount in controversy exceeded $5 million “with a reasonable amount of intelligence” by reviewing its own records.

When Oscar de la Renta ultimately conducted its own internal investigation, including a review of it s documents to determine the number of individuals who interned during the statutory period, it learned the proposed class contained approximately 600 individuals and the $5 million amount in controversy threshold was satisfied.  As a result, it sought removal.

Plaintiff argued the employer needed to review its own records to determine that the CAFA requirements were met, and that failing to do so for two years was unreasonable.

The Court disagreed.  The Complaint stated the potential class exceeded 40 individuals, and the Court found this alleged number of proposed class members would not yield an amount in controversy approaching $5 million.  Instead, with just 40 alleged class members, the amount in controversy would be less than $500,000.  The Court held that CAFA does not require a defendant to look beyond the pleadings and related documents to determine if the requirements are met, and failure to conduct an investigation earlier provided no basis for concluding that removal was untimely.  The Court also found that the CAFA exceptions did not apply as the Plaintiff failed to prove their application absent anecdotal arguments.

Takeaway

While we would not go so far as to say that “it’s never too late” to apply CAFA, this ruling shows that, even years after filing, the CAFA requirements can be met for the first time, and removal to federal court may be an option. As a result, defendants should always take a fresh look at each stage of the litigation to see if the requirements have been met in the first instance.  But once the CAFA requirements are satisfied, remove quickly.  Failure to do so may result in the removal application being denied.  After all, “time makes fools of us all.”

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