Courts Remain Skeptical of Certifying Data Privacy Class Actions

Hacker Stealing Data with Binary Data Technology Abstract

In this era where there appears to be a new data security incident announced each month, there is surprisingly little class certification jurisprudence for data security class actions. Indeed, to date we know of only four decisions that have addressed class certification of data privacy actions, excluding settlement certification, and only one of those addresses the release of employee data: Dolmage v. Combined Ins. Co. of Am., No. 14 C 3809, 2017 WL 1754772, at *7 (N.D. Ill., May 3, 2017); In re Target Corp. Customer Data Sec. Breach Litig., 309 F.R.D. 482, 484 (D. Minn., 2015); In re Hannaford Bros. Co. Customer Data Sec. Breach Litig., 293 F.R.D. 21, 33 (D. Me., 2013); and In re TJX Companies Retail Sec. Breach Litig., 246 F.R.D. 389, 397-98 (D. Mass., 2007). With only one exception (Target), courts have refused to certify contested data privacy classes.

The theme of decisions denying class certification is that causation and damages in data security actions are individualized questions that defeat the commonality or predominance tests of Rule 23(a) and Rule 23(b)(3). For example, in Dolmage, the defendant insurance company’s vendor posted Social Security numbers and other personal information of thousands of the defendant’s employees online. Dolmage, 2017 WL 1754772 at *1-2. The court, however, refused to certify a class of the employees and explained why data security cases may be unsuitable for class resolution. Id. at *6-10.

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California Off-the-Clock Case Involving Independent Contractors Crumbles

An inspector looks over a residential roof at the peak.

Extensive expert report still fails to establish fairness and manageability for trial.

A growing number of courts are questioning classwide proof in off-the-clock cases, and those examining expert testimony in such matters are increasingly coming to the conclusion that they cannot be fairly managed for trial.

We’ve blogged this issue several times (see, for example, January 8, 2019 and April 9, 2018). Another interesting recent example is the decision of the California Court of Appeal in McCleery v. Allstate Insurance Co., Case No. B282851 (Cal. App. Dec. 14, 2018). The McCleery plaintiffs were property inspectors working for various insurers who had been classified as independent contractors. They alleged that they were, in fact, employees and that they had been deprived of the minimum wage, overtime, and meal and rest periods under California law.

The case looked like hundreds of others brought in California, but it did have the interesting combination of independent contractor and off-the-clock (actually timekeeping) issues. It was also unusual in that the trial court initially refused to certify the class but was reversed by the court of appeal to more carefully review the plaintiffs’ proposed trial plan.

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Third Circuit Reverses Rule 23 Certification in ‘Off the Clock’ Case

Over head Shot of rain cloud ; weather change

Ruling also touches upon FLSA conditional certification order

Many wage and hour cases filed today try to name popular targets and to rely upon tried and true allegations. Unfortunately for employers, this is at times a successful playbook, particularly when settlement is the primary goal. That approach, however, doesn’t always work, particularly if the district court doesn’t employ the appropriate rigorous analysis under Rule 23, as a case decided on New Year’s Eve demonstrates. That case also addresses conditional certification under the Fair Labor Standards Act (FLSA) and the interplay between Rule 23 standards and those under FLSA Section 16(b), reflecting or possibly casting doubt on the ambivalent approach taken by many courts.

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What’s Ahead at the Supreme Court?

There are at least four cases now before the U.S. Supreme Court that may be of significant interest to employers. Three were argued in October 2018, and certiorari was granted in the last case on Dec. 10.

The Three Cases Already Argued

The three cases argued all involve arbitration. The first, New Prime Inc. v. Oliveira, No. 17-340, was argued on Oct. 3, 2018. The issues presented were:

Whether a dispute over applicability of the Federal Arbitration Act’s (FAA’s) Section 1 exemption is an arbitrability issue that must be resolved in arbitration pursuant to a valid delegation clause; and (2) whether the FAA’s Section 1 exemption, which applies on its face only to “contracts of employment,” is inapplicable to independent contractor agreements.

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Southern District of New York Denies Certification of Nationwide Case Alleging Sex Discrimination

A claim is brought against a large employer contending that, although personnel decisions are made locally, it discriminates in pay and promotions on the basis of sex nationwide. Sound familiar? That was, essentially, the claim in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011), that the Supreme Court held should not have been certified. And seven years later, it was the claim the Southern District of New York has now refused to certify in Kassman v. KPMG LLP, Case No. 11-cv-3743 (Nov. 30, 2018).

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Fifth Circuit Holds That the Company in Class Action Waived Its Right to Arbitrate Because of Litigation Conduct

The standards for determining when a party waives its right to arbitrate through participation in litigation have never been uniform among the circuits or easily applied. The recent Fifth Circuit opinion in Forby v. One Technologies, L.P. (Case No. 17-10883, decided Nov. 28, 2018) illustrates the difficulty of applying the “prejudice” requirement in a consumer fraud and unjust enrichment class action.

In Forby, the district court found that:

[w]hile . . . Forby has suffered some prejudice . . . she has not suffered prejudice to the extent required by existing precedent .  . . .  The only prejudice that Forby has adequately demonstrated is delay, and delay alone is insufficient to establish that Forby has been prejudiced by Defendants’ invocation of the judicial process.

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Central District of California Denies Certification in Mortgage Loan Officer Case

FLSA Conditional Certification Denied Too

The position of mortgage loan officer has been a fertile source of wage and hour claims, but a recent case from the Central District of California reflects that certification of a class, even involving such a “target” position, is by no means guaranteed.

In Fernandez v. Bank of America, Case No. CV 17-6104-MWF (JCx) (C.D. Cal. Nov. 27, 2018), the defendant bank employed mortgage loan officers who were paid primarily by commission. Anticipating increases in the salary requirements under the FLSA, it reclassified the loan officers from exempt to non-exempt in 2016. According to the court’s opinion, between commissions and other incentives, these employees could earn between approximately $30,000 and more than $600,000 annually. The plaintiffs, a group of loan officers, brought suit, contending that they had been misclassified and that the bank had failed to provide them separate compensation for time spent in training and other activities that did not directly generate commissions. They asserted claims not only under California law but also under the Fair Labor Standards Act. They moved the court for certification of the class under California law and for conditional certification under the FLSA. Continue Reading

Tenth Circuit Finds Massage Therapy Students to Be Just That – Students

Once thought to be the next wave of wage-and-hour cases, suits involving interns and students have tended to founder because most training programs are intended to train rather than to provide employment. We’ve blogged about issues like this on several occasions in the past [May 12, 2013; July 6, 2015; Sept. 24, 2015; Dec. 12, 2017], but they still arise in the hopes of finding the “next big thing.” Most recently, in Nesbitt v. FCNH, Inc., Case No. 17-1084 (10th Cir. Nov. 9, 2018), the plaintiff was a former massage therapy student who received vocational training at a for-profit vocational school. She asserted that while designated a student, she and other students were actually employees receiving minimal instruction and, accordingly, they sought to be paid the minimum wage for their time. The district court granted summary judgment for the school, and the plaintiff appealed.

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Another bill aimed at employee arbitration agreements – this time to nullify Epic Systems

On Oct. 30, 2018, Rep. Jerrold Nadler, D-N.Y., and Rep. Bobby Scott, D-Va., together with 58 Democratic cosponsors, introduced the Restoring Justice for Workers Act, H.R. 7109. Unlike some earlier bills, this proposed legislation would prohibit all pre-dispute arbitration agreements covering employment claims, forbid retaliation against employees for refusing to arbitrate those disputes and amend the National Labor Relations Act (NLRA) to forbid agreements that restrict employees’ right to collectively litigate employment claims.

The new bill also gives protections to ensure that post-dispute arbitration agreements are not coerced and that the voluntary consent of employees has been given. A similar bill is expected to be introduced in the Senate by Sen. Patty Murray, D-Wash.

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Tenth Circuit Refers Au Pairs’ Class Claims to Arbitration

“Well, They Gave Me the Agreement in My Own Language, but I Still Didn’t Understand the English Version” doesn’t work.

The Federal Arbitration Act will turn 100 in the next few years, but despite more than nine decades of litigation, some opinions can be explained only by the “judicial hostility” to arbitration that caused the statute to be enacted in the first place.

Case in point. In Beltran v. AupaireCare, Inc., Case No. 17-1359 (10th Cir. Oct. 30, 2018), a group of au pairs brought suit against several au pair agencies, asserting claims for antitrust and under the Racketeer Influenced and Corrupt Organization Act (RICO), among others. The crux of the claim was that the agencies allegedly used the United States’ J-1 Visa program to tap foreign nationals as a source of cheap child care labor, with resulting low pay rates. Among other rulings, the district court certified a class of more than 90,000 au pairs, a questionable decision that likely deserves its own blog, but the key issue for this posting is the court’s refusal to enforce certain of the au pairs’ arbitration agreements. The district court concluded that the agreements were both procedurally and substantively unconscionable. In a nutshell, it relied on the fact that the plaintiffs were foreigners, English was not their first language and they did not understand the word “arbitration.” As to substantive unconscionability, the court found several clauses offensive, including a forum selection clause and one giving the defendants control over the selection of the arbitrator. While the number of offending clauses was small, the court then refused to sever them on the grounds that the provisions were “permeated” by unconscionable terms and “buried” toward the end of the contract.

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