Class Actions National Institute October 24-25, 2012

The National Law Review is pleased to bring you information about the upcoming ABA Class Actions National Institute:

Attendees of the program will:

  • Gain practical knowledge on how judges view class-action lawsuits
  • Review class-action lawsuits in the Supreme Court
  • Learn trial techniques to sharpen their skills as class-action litigators

Who should attend?

  • Attorneys who litigate class-action lawsuits
  • In-house counsel and litigators interested in learning about the current state of class actions, including recent Supreme Court class-action decisions
  • Lawyers who litigate class-certification motions

When

October 24 – 25, 2012

Where

  • Sax Chicago
  • 333 N Dearborn St
  • Chicago, IL, 60654-4956
  • United States of America

Class Actions National Institute October 24-25, 2012

The National Law Review is pleased to bring you information about the upcoming ABA Class Actions National Institute:

Attendees of the program will:

  • Gain practical knowledge on how judges view class-action lawsuits
  • Review class-action lawsuits in the Supreme Court
  • Learn trial techniques to sharpen their skills as class-action litigators

Who should attend?

  • Attorneys who litigate class-action lawsuits
  • In-house counsel and litigators interested in learning about the current state of class actions, including recent Supreme Court class-action decisions
  • Lawyers who litigate class-certification motions

When

October 24 – 25, 2012

Where

  • Sax Chicago
  • 333 N Dearborn St
  • Chicago, IL, 60654-4956
  • United States of America

Theft of Employee Data from Third-Party Vendor Exposes Employer and Vendor to Privacy Class Action

The National Law Review recently published an article by Kevin M. McGinty of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. regarding Employee Data Theft:

A recently-filed class action lawsuit asserts claims against the Winn-Dixie supermarket chain and a third-party vendor, Purchasing Power, LLC, in connection with the alleged theft of employee data provided to Purchasing Power in order to administer a discount purchasing program offered to Winn-Dixie employees.  The claims advanced against Winn-Dixie and Purchasing Power highlight the potential risks associated with sharing employee or customer data with third party vendors, and underscore the need for companies to ensure that the data security practices of third-party vendors are consistent with those of the companies themselves.  The complaint also demonstrates how failure to make prompt disclosure of data breaches to affected individuals can increase the risk of class action litigation.

According to the complaint in Burrows v. Purchasing Power, LLC, Case No. 1:12-cv-22800 (S.D. Fla.), Winn-Dixie either transferred or permitted Purchasing Power to access personally identifiable information (“PII”) of Winn-Dixie employees for the purpose of making a discount purchasing program available to Winn-Dixie’s employees.  The complaint alleges that Winn-Dixie notified employees on January 27, 2012 that Winn-Dixie employee data had been inappropriately accessed by an employee of Purchasing Power.  The notice further stated that Winn-Dixie first learned of the data theft in October 2011.  According to the complaint, Winn-Dixie did not explain the reason for its delay in providing notice, and Purchasing Power has never, at any time, provided notice of the breach to Winn-Dixie employees.

One unique aspect of Burrows that distinguishes it from the typical privacy class action is an allegation that the named plaintiff suffered actual injury by reason of a data breach.  Specifically, plaintiff alleges that the Internal Revenue Service refused to accept his 2011 federal income tax return, stating that a return had already been filed in his name.  Plaintiff claims that someone who had access to the PII stolen from Purchasing Power filed the return, thereby depriving plaintiff of an anticipated refund.  He seeks damages associated with the lost refund, in addition to other damages associated with the risk of further misuse of his PII.

The complaint asserts claims for negligence, violation of the federal Stored Communications Act, 18 U.S.C. § 2702, violation of the Florida Unfair and Deceptive Trade Practices Act, and breach of the common law right to privacy.  Plaintiff asserts these claims on behalf of a putative class of all Florida employees of Winn-Dixie whose PII was provided to or accessed by Purchasing Power.

The complaint in Burrows has some evident flaws.  The Stored Communications Act only applies to conduct by entities such as Internet service providers that are engaged in the “provision to the public of computer storage or processing services by means of an electronic communications system.”  18 U.S.C. § 2711(2).  Neither the defendants nor the conduct alleged facially meet this requirement.  Further, the particularized harm allegedly suffered by the named plaintiff allows defendants to argue that determining whether class members suffered actual injury would raise highly individualized questions of fact that preclude certification of a plaintiff class to seek money damages under Fed. R. Civ. P. 23(b)(3).

Nonetheless, certain aspects of Burrows pose challenges for the defendants.  Where, as here, the data breach allegedly resulted from a targeted effort to steal PII – unlike cases involving thefts of laptops, in which any data theft is incidental – courts have been more receptive to claims that class members’ costs to mitigate risk of identity theft constitute cognizable injury.  The actual injury allegedly suffered by the named plaintiff supports the argument that the threat of misuse of the stolen data is not speculative and, therefore, warrants monetary and injunctive relief.

Burrows provides a timely reminder that it is critical that any company that shares customer or employee PII with a vendor must ensure that the vendor can adequately protect such data.  Executing a written agreement specifying the company’s and the vendor’s respective data security obligations is a necessary, but not sufficient step.  The contract will not be worth the paper on which it is written if the vendor lacks the capability to comply with its obligations.  Individuals responsible for the company’s data security practices must engage in sufficient due diligence to assure the company that the vendor’s data security practices are at least commensurate with the company’s practices and otherwise comply with the legal requirements of all applicable states and jurisdictions.  In addition, to provide proper incentives to adhere to contract requirements, the agreement should indemnify the company for any losses caused by the vendor’s failure to satisfy its data security obligations.

Finally, Burrows illustrates the critical importance of prompt notification whenever a data breach occurs.  If plaintiff was indeed victimized by someone who filed a bogus return using the plaintiff’s stolen PII, notice to employees in October 2011, perhaps combined with proactive steps to protect affected employees from misuse of data, might have forestalled such an injury.  Absent such an occurrence, it is unlikely that a lawsuit would ever have been filed.  Ultimately, providing prompt notice whenever a data breach occurs avoids violating state law notice requirements and discourages the filing of class action lawsuits.

©1994-2012 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Class Actions National Institute October 24-25, 2012

The National Law Review is pleased to bring you information about the upcoming ABA Class Actions National Institute:

When

October 24 – 25, 2012

Where

  • Sax Chicago
  • 333 N Dearborn St
  • Chicago, IL, 60654-4956
  • United States of America

Class Actions National Institute October 24-25, 2012

The National Law Review is pleased to bring you information about the upcoming ABA Class Actions National Institute:

When

October 24 – 25, 2012

Where

  • Sax Chicago
  • 333 N Dearborn St
  • Chicago, IL, 60654-4956
  • United States of America

Class Actions National Institute October 24-25, 2012

The National Law Review is pleased to bring you information about the upcoming ABA Class Actions National Institute:

When

October 24 – 25, 2012

 

Where

  • Sax Chicago
  • 333 N Dearborn St
  • Chicago, IL, 60654-4956
  • United States of America

 

The Supreme Court Paves the Way to End Consumer Class Actions

Last year, the Supreme Court removed state law prohibitions on contractual agreements to waive class action rights.  Because disputes involving small dollar amounts (only $30.22 per plaintiff in a recent Supreme Court case and a $2.99-per-month service for plaintiffs in a recent 11th Circuit decision) provide little incentive for plaintiffs’ lawyers (or the plaintiffs themselves), these cases have often materialized as class actions resulting in massive class fees and statutory damages.  As a result, many businesses include arbitration provisions in their consumer contracts that contain a class action waiver provision to require individual plaintiffs to bring their claims on their behalf alone.

Although most courts have enforced class action waivers in arbitration provisions considering the U.S. Supreme Court’s long-standing position that arbitration agreements must be enforced according to their terms, some state high courts have struck down contractual agreements not to bring class actions, including class arbitrations, as unconscionable and a violation of state public policy.  At least California, New Jersey, and Massachusetts’ Supreme Courts had issued such decisions in the last seven years.  See Discover Bank v. L.A. County Superior Court, 36 Cal. 4th 148 (Cal. 2005); Muhammad v. County Bank of Rehoboth Beach, 912 A.2d 88 (N.J. 2006); Feeney v. Dell Inc., 908 N.E.2d 753 (Mass. 2009).

The California Supreme Court in Discover Bank held that class action waivers in consumer arbitration agreements were unconscionable if the agreement is an adhesion contract and involves small amounts of damage in dispute where the party with inferior bargaining power alleges a deliberate scheme to defraud.  36 Cal. 4th at 162-63.  Similarly, in New Jersey, the Supreme Court held that the class-action waiver in the arbitration agreement was “clearly a contract of adhesion” and that the prohibition of class actions would prevent plaintiff from pursuing her statutory consumer protection rights and shield defendants from compliance with state laws.  Muhammad, 912 A.2d at 100-01. The Massachusetts Supreme Court similarly held that “public policy sometimes outweighs the interest in freedom of contract” when it refused to enforce an arbitration provision prohibiting class actions. Feeney, 908 N.E.2d at 761-62.

In April of 2011, however, the United States Supreme Court held that agreements not to arbitrate through class actions should be enforced and overruled Discover Bank in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011).  In Concepcion, the putative class complained that AT&T advertised free cellular phones with the purchase of AT&T service, yet the consumers were charged $30.22 in sales tax based on the phones’ retail value.  Despite AT&T’s extensive arbitration provision that was described as “quick, easy to use” and would likely result in “promp[t] full or … even excess payment to the customer without the need to arbitrate or litigate” the Ninth Circuit,  relying on Discover Bank, nonetheless found that the waiver of the ability to bring a class action was unconscionable.  Laster v. AT&T Mobility LLC, 584 F.3d 849, 855 (9th Cir. 2009).  On certiorari, the Supreme Court held that, because it is a fundamental principle that arbitration is a matter of contract and those contracts must be enforced according to their terms, and where, by contrast, state law prohibits outright the arbitration of a particular claim, the conflicting rule is displaced by the Federal Arbitration Act.  The Supreme Court thus reversedDiscover Bank holding that the rule of Discover Bank stood “as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”Concepcion, 131 S.Ct. at 1753.

In August of last year, the Eleventh Circuit followed the rule of law established byConcepcion.  Cruz v. Cingular Wireless, LLC, 648 F.3d 1205 (11th Cir. 2011). The plaintiffs in Cruz were customers of Cingular Wireless (which was acquired by AT&T) and had signed the same binding arbitration agreement that was litigated inConcepcion.  In Cruz, plaintiffs complained that Cingular Wireless had fraudulently included a $2.99 monthly “Roadside Assistance” charge to plaintiffs’ monthly bills in violation of Florida’s Deceptive and Unfair Trade Practices Act.  Cruz v. Cingular Wireless, LLC, No. 2:07-cv-714-FtM-29DNF, 2008 WL 4279690 at *1 (M.D. Fla. Sept. 15, 2008).  Plaintiffs alleged that they never ordered the service and the charges were hidden in their telephone bills.  The Eleventh Circuit heard oral argument in Cruz before the Supreme Court rendered the decision in Concepcion; however, it was awaiting the Florida Supreme Court’s answers to a series of certified questions related to determining the substantive questions of unconscionability under Florida law and the time Concepcion was decided.

In its decision, the Eleventh Circuit echoed the Supreme Court:  arbitration provisions will be enforced as written − including waivers of class action rights. The court acknowledged that, even if Florida law would be sympathetic to plaintiff’s arguments that absent class procedures numerous claims of small values where potential plaintiffs do not even know of their claims, defendants may violate Florida law, a state policy that stands as an obstacle to the Federal Arbitration Act’s objective of enforcing arbitration agreements according to their terms is preempted. Cruz, 648 F.3d at 1213.

The Third Circuit similarly held that the Federal Arbitration Act specifically preempted the rule established by the New Jersey Supreme Court in the Muhammad decision.  In Litman v. Cellco Partnership, 655 F.3d 225 (3d Cir. 2011), the Third Circuit stated, “[w]e understand the holding of Concepcion to be both broad and clear:  a state law that seeks to impose class arbitration despite a contractual agreement for individualized arbitration is inconsistent with, and therefore preempted by, the FAA, irrespective of whether class arbitration ‘is desirable for unrelated reasons.’” Id. at 231.

Although a waiver of the right to pursue a claim as a class action can be challenged under grounds of fraud or duress under the savings clause of section 2 of the Federal Arbitration Act, these arguments would likely require individualized arguments that could not apply in a class action context.  As a result, it appears that future “unconscionability” attacks to contractual class action waivers will fail under the analysis of ConcepcionCruz, and Litman. This is a big win for businesses who thoughtfully draft their consumer contracts to avoid class action plaintiffs’ attorneys’ fees and exponential damages.

Just as a waiver of the right to a jury trial or the limiting of consequential damages have become routine in many consumer contracts, the waiver of the ability to bring a class action should be considered in all consumer contracts. For example, the language contained in the contracts enforced in the Conception and Cruz cases provided for arbitration of all disputes between the parties and requires that those disputes be brought in the consumer’s “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.  Further, unless you and [business] agree otherwise, the arbitrator may not consolidate more than one person’s claims, and may not otherwise preside over any form of a representative or class proceeding.” Similar language, less than fifty words, could save millions for a business involved in consumer contracts in the wake ofConceptionCruz, and Litman.

*Until March 2012, Monica Brownewell Smith was a partner in the Litigation Department. While she raises her young children, Monica is working for the Firm as a contract attorney.

© 2012 BARNES & THORNBURG LLP

LinkedIn Password Theft Results in Class Action Lawsuit: Privacy and Security Law Matters

The National Law Review recently published an article by Kevin M. McGinty of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. regarding The Recent Hacking of LinkedIn:

Nearly as predictable as the sun coming up in the morning, the recent theft of 6.5 million LinkedIn user passwords has resulted in the filing of a class action lawsuit in a California federal court.  In her complaint, a LinkedIn premium subscriber asserts claims on behalf of all LinkedIn users for breach of implied and express contractual obligations, negligence and violation of California’s Unfair Competition Law, Cal. Bus. & Prof. Code § 17200.

Although the attack affected the passwords of just over 5% of LinkedIn’s approximately 120 million users, plaintiff purports to assert claims on behalf of all LinkedIn users.  Although plaintiff alleges classwide damages in excess of $5,000,000 (the jurisdictional threshold for federal court jurisdiction over the state law claims advanced in the complaint) it is unclear what damages plaintiff alleges that the class actually sustained by reason of merely losing passwords.  Some commentators have hypothesized that the propensity to use a single password for multiple online accounts could result in losses where non-LinkedIn accounts are accessed using an individual’s LinkedIn password.

Proving that such losses have occurred, however, would require highly individualized showings that would likely preclude adjudicating plaintiff’s claims as a class action.  Even less clear is what conceivable damages were allegedly sustained by LinkedIn users whose passwords were not stolen.  Thus, as with most privacy class actions, damages issues appear to pose the greatest obstacle to the success of the claims against LinkedIn.

©1994-2012 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

California Court Enforces Waivers of Class and Private Attorneys General Act “PAGA” Representative Claims

The National Law Review recently published an article regarding PAGA Representative Claims written by Labor & Employment Practice of Morgan, Lewis & Bockius LLP:

Recent court decision represents significant development for parties seeking to enforce arbitration agreements containing class and representative waivers.

On June 4, a unanimous panel of the California Court of Appeal for the Second District upheld a lower court’s ruling compelling individual arbitration of a plaintiff’s wage and hour claims and dismissing both class and representative claims under the California Labor Code Private Attorneys General Act (PAGA). Iskanian v. CLS Trans. Los Angeles, LLC, — Cal. Rptr. 3d —, No. B235158, 2012 WL 1979266 (Cal. Ct. App. 2d Dist. June 4, 2012). In so ruling, the court (i) held that the U.S. Supreme Court’s opinion in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) (Concepcion), preempted any California law prohibiting arbitration of certain claims; (ii) rejected a recent decision from the National Labor Relations Board (NLRB); and (iii) held that employees may validly waive their right to bring PAGA claims on behalf of others as part of an arbitration agreement.

Background

As a driver for defendant CLS Transportation, LLC (CLS), plaintiff Arshavir Iskanian signed a “Proprietary Information and Arbitration Policy/Agreement” providing that any and all employment-related disputes would be submitted to binding arbitration. The arbitration agreement contained a waiver of the right to bring claims on behalf of a class or as a representative of others.

Notwithstanding this arbitration agreement, Iskanian filed a putative class action complaint against CLS, alleging that the company failed to pay overtime, provide meal and rest breaks, reimburse business expenses, provide accurate and complete wage statements, and pay final wages in a timely manner. CLS moved to compel arbitration, which the trial court initially granted. Shortly after the trial court issued its order, the California Supreme Court issued its opinion in Gentry v. Superior Court (Circuit City Stores), 42 Cal. 4th 443 (2007), holding that class action waivers in employment arbitration agreements were unenforceable as contrary to public policy. On appeal, CLS’s initial motion to compel arbitration was reversed, and the case proceeded to litigation in Superior Court.

Soon after the U.S. Supreme Court issued its opinion in Concepcion, which overruled California law in regards to class action waivers in commercial contracts, CLS renewed its motion to compel arbitration. The trial court granted the motion, and a second appeal followed.

Gentry Overruled

On appeal, the court affirmed, holding that Concepcion overruled Gentry and rejecting the plaintiff’s “vindication of statutory rights” argument. Finding that a purported intent to vindicate statutory rights “is irrelevant in the wake of Concepcion,” the court held that “[t]he sound policy reasons identified in Gentry for invalidating certain class waivers are insufficient to trump the far-reaching effect of the [Federal Arbitration Act (FAA)].” Iskanian, 2012 WL 1979266 at *5. Thus, the court held that any California statute or policy prohibiting arbitration of certain claims is invalid, and that under the FAA, class and representative waivers should be enforced according to their terms “so as to facilitate streamlined proceedings.” Id.

Rejection of D.R. Horton

The court also rejected the plaintiff’s argument that a recent decision by two members of the NLRB in D.R. HortonInc., 357 NLRB No. 184 (2012), barred enforcement of class and representative waivers in employment arbitration agreements as a violation of Section 7 of the National Labor Relations Act (NLRA).

Finding several faults with the D.R. Horton decision, the Iskanian court declined to give any deference to the NLRB, noting that “the FAA is not a statute the NLRB is charged with interpreting.” Iskanian, 2012 WL 1979266, at *6. The court instead followed the Supreme Court’s binding authority in CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012), that, unless the FAA is “overridden by a contrary congressional command,” then “agreements to arbitrate must be enforced according to their terms.” Iskanian, 2012 WL 1979266, at *7. Finding no such “congressional command” in the NLRA, the court rejected D.R. HortonId.

PAGA Waivers Enforceable

Departing from two prior decisions issued by other California Courts of Appeal, theIskanian court held that the representative action waiver of PAGA claims in the parties’ arbitration agreement was enforceable under Concepcion. The court compelled individual arbitration of the plaintiff’s PAGA claim, holding that “any state rule prohibiting the arbitration of a PAGA claim is displaced by the FAA.” Id. at *9. The court further held that California’s “Broughton-Cruz rule”—which bars arbitration of public injunctive relief actions—has been overruled by Concepcion. Accordingly, “the public policy reasons underpinning the PAGA do not allow a court to disregard a binding arbitration agreement. The FAA preempts any attempt by a court or state legislature to insulate a particular claim from arbitration.” Id. The court concluded that the plaintiff could not pursue representative claims against CLS.

Implications

The Iskanian decision, when coupled with another recent California opinion,Kinecta Alternative Financial Solutions, Inc. v. Superior Court (Malone), 205 Cal. App. 4th 506 (2012), which held that class allegations may be dismissed when a court compels individual arbitration, represents a significant development for parties seeking to enforce arbitration agreements containing class and representative waivers.

The Iskanian decision, however, creates a clear split in authority among California Courts of Appeal regarding the enforceability of PAGA representative action waivers. See, e.g., Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489 (2d Dist. 2011) (holding that PAGA waivers were not enforceable); Reyes v. Macy’s, Inc., 202 Cal. App. 4th 1119 (1st Dist. 2011) (following Brown and refusing to compel individual arbitration of PAGA claims). This split may lead to California Supreme Court review, which means that the issue may not be resolved anytime soon.

While awaiting a final outcome, employers should carefully consider enforcement of arbitration agreements and the scope of waivers contained in such agreements.

Copyright © 2012 by Morgan, Lewis & Bockius LLP

Pennsylvania Adopts Significant Tort Reform Eliminating Joint and Several Liability: Fair Share Act Signed into Law

The National Law Review recently published an article by Meredith N. Reinhardt of Drinker Biddle & Reath LLP regarding Tort Law Reform in Pennsylvania:

In our June 2011 Newsletter, we discussed the status of important pending legislation in Pennsylvania (the Fair Share Act) designed to eradicate the common law doctrine of joint and several liability.  As of the date of that article, the Pennsylvania House of Representatives approved the Fair Share Act (H.B. 1), and the Act was before the Pennsylvania Senate for consideration.  After extensive debate, the Senate ultimately approved a bill substantively identical to H.B. 1.

On June 28, 2011, Governor Tom Corbett signed the Fair Share Act into law, effective immediately.  The Fair Share Act, (42 Pa. Cons. Stat. § 7102), provides for proportionate share liability among joint tortfeasors and eliminates the common law doctrine of joint and several liability in all but a few limited situations.  Under the new law, each defendant is liable for “that proportion of the total dollar amount awarded as damages in the ratio of the amount of that defendant’s liability to the amount of liability attributed to all defendants and other persons to whom liability is apportioned under subsection (a.2).”  42 Pa. Cons. Stat. § 7102(a.1)(1).  Joint and several liability still applies where there is an intentional misrepresentation, an intentional tort, a claim under section 702 of the Hazardous Sites Cleanup Act, a violation of section 497 of the Liquor Code or where a defendant is liable for 60% or greater of the total liability apportioned to all parties.  42 Pa. Cons. Stat. § 7102(a.1)(3).

The Fair Share Act is a significant victory for product manufacturers, insurance companies and other businesses who are often hauled into litigation because of their “deep pockets” even if they might be only minimally liable.  Reactions from these groups has been overwhelmingly positive.  Pennsylvania Chamber of Business and Industry Vice President Gene Barr commented that the Fair Share Act “restores fairness and predictability to the state’s legal system, encouraging business investment and job growth.”1 The Chairman of the Insurance Agents & Brokers of Pennsylvania further praised the new law:  “The act is a win for consumers, businesses and the insurance industry, which all carry the financial burdens of such a litigious environment.”2

Conclusion

As a practical matter, passage of the Fair Share Act will likely decrease the frequency “deep pocket” defendants with minimal liability are brought into litigation.  Even if such defendants are joined in litigation, the Fair Share Act will reduce the possibility of inequitable judgments.  As time passes, product manufacturers, insurance companies and other business who are often co-defendants in various litigations will continue to see the benefits of this significant tort reform.


 

1 Press Release, Gov. Corbett signs Chamber members’ No. 1 lawsuit abuse reform priority (June 28, 2011) (on file with author and available at: http://www.pachamber.org/www/news/press_releases/2011/Gov%20Corbett%20signs%20Chamber%20members%20No%201%20lawsuit%20abuse%20reform%20priority.php)

 

2 Press Release, IA&B applauds Pennsylvania lawsuit-abuse reform (June 28, 2011) (on file with author and available at:  http://www.iabgroup.com/press_center/releases/2011/06_28_tort_reform.html).


©2012 Drinker Biddle & Reath LLP