Category: Litigation

Petitioner Succeeds in Wiping Out Challenged Claims at PTAB

Background

In Micron Technology Inc. v. Godo Kaisha IP Bridge 1, IPR2020-01007, Paper 36 (P.T.A.B. Dec. 1, 2021), the Patent Trial and Appeal Board found claims 1−17 of U.S. Patent No. 6,424,041, which described semiconductor devices designed to prevent copper from diffusing from wiring into memory storage regions, unpatentable. The Board’s decision, which determined that the claims were unpatentable as obvious in light of the prior art, undertook both a claim construction and obviousness determination.

Claim Construction

The Board’s decision construed two terms: “memory storage portion” and “copper-diffusion blocking means.” The primary dispute regarding “memory storage portion” was whether it must contain “access circuitry.” The Patent Owner argued that the “memory storage portion” must include access circuitry. After reviewing the specification, the Board construed “memory storage portion” to mean “the region where at least the components that are used for the storage of information are located” and determined that no access circuitry was required. Id. at *23. Then, the Board took to determining the meaning of the term “copper-diffusion blocking means,” which was a means-plus-function limitation under 35 U.S.C. § 112. To construe this term, the Board determined what the claimed function was and identified the structures or materials disclosed in the specification that corresponded to the means for performing that function. Considering the specification, the Board agreed with the Petitioner’s proposed construction that the claimed function of the term was “blocking copper diffusion from said wiring portion toward said memory storage portion,” and the corresponding structures were a ceiling film or a vertical wall, and equivalents of these. Id. at *28.

Obviousness

The Board determined that Petitioner made a sufficient showing that claims 1−17 would have been obvious in light of two prior art references, Kishii and Ryan.

The parties disputed whether Kishii taught “a memory storage portion on a main surface of said semiconductor substrate.” Id. at *32. The petitioner argued that Kishii’s stacked fin capacitor was a memory storage portion. The patent owner disputed this contention, arguing that the petitioner did not show that Kishii’s capacitor stored information and the stacked fin capacitor may be used for a different purpose in dynamic random-access memory (“DRAM”), such as a decoupling capacitor that does not store information. Petitioner offered expert testimony, which cited examples where a stacked-fin capacitor had been previously used in a DRAM memory cell, as opposed to decoupling circuitry. The Board was persuaded by Petitioner’s expert and found Kishii’s stacked-fin capacitor was a portion or component of a semiconductor device that stored information.

Next, the Board determined that a person of ordinary skill in the art would have been reasonably motivated to combine Kishii and Ryan to teach using a copper wire, as required by claim 1, given Ryan’s teaching that copper was a preferred material for such interconnect layers due to its low resistivity, low cost, and enhanced reliability. The Board found the final limitation of claim 1 was taught by Kishii, which was determined to teach a protective film that was “structurally indistinguishable” from the ’041 patent and performed the same claimed function as claim 1 required.

Additionally, the Board determined that petitioner made a sufficient showing that claims 13 and 14 would have also been obvious over Liang and El-Kareh. Claims 13 and 14 added the claim limitation – “wherein the memory storage portion is a memory storage portion for accumulating and releasing charges according to information.” Id. at *59. Combining the prediction from El-Kareh that protection against degradation would be necessary, and Liang’s ability to protect against said degradation, the Board determined that the two references taught a reasonable expectation of success for the limitation of claims 13 and 14.

© 2022 Finnegan, Henderson, Farabow, Garrett & Dunner, LLP

Article By Emma N. Ng, Shannon M. Patrick and Amanda K. Murphy, Ph.D. of Finnegan

For more articles on IP, visit the NLR Intellectual Property section.

The OSHA Mandate — Supreme Court Oral Argument Preview

Tomorrow morning (Friday, January 7), the Supreme Court hears oral argument in the OSHA (10 a.m. EST) and CMS (11 a.m. EST) mandate cases.  (You can listen to the arguments live here.)  For the OSHA mandate, one group of petitioners consists of a coalition of twenty-seven States, led by Ohio, and the other consists of a coalition of business associations.  We’ve read the briefs, and here are our issues to look out for tomorrow:

Whether OSHA may only regulate occupational dangers.  The petitioners argue that because the OSH Act and OSHA regulations are all concerned with occupational hazards, OSHA cannot regulate against a virus presenting a risk to all Americans.  Meanwhile, OSHA argues that the OSH Act is not limited to dangers that are workplace-specific, especially given Congress’ previous endorsement of OSHA’s measures to encourage vaccination against bloodborne pathogens.

Whether COVID-19 is a “grave danger” that represents a “new hazard.”  The States argue that the OSH ACT limits “grave danger” to those “from exposure to substances are agents determined to be toxic or physically harmful,” connoting toxicity and poisonousness.  Thus, it cannot refer to airborne viruses that are “both widely present in society” and “non-life-threatening to a vast majority of employees.”  OSHA argues that the statute’s disjunctive phrasing allows for an ETS targeting viruses that are physically harmful, or a “new hazard, even if not technically “toxic” in nature.

Whether there is an “emergency” to justify the ETS.  The petitioners continue to argue that nothing significant has changed over the past year the country had been living with the virus to justify finding an emergency.  OSHA responds by pointing to problems presented by the return to work, the Delta variant, and COVID fatigue.

Whether the ETS is “necessary.”  The States argue that the OSH Act imposes a higher standard:  while other regulations may be merely “reasonably necessary or appropriate,” the Act requires emergency regulations to be “necessary”—which the States read as essential or indispensable.  According to the States, the delay between the issuance of the ETS and the time it was supposed to go into effect dooms any argument that it is necessary.  The business associations, for their part, stress that OSHA could have gone through notice and comment proceedings months ago.  In OSHA’s view, the statute is not nearly so narrow and it is enough that workplaces contribute substantially to the spread of the virus and that vaccines are the best way to fight COVID-19.

The scope of relief.  The petitioners obviously want to stay the entire mandate—both the vaccine and masking/testing requirements.  OSHA argues that any stay should be limited to the vaccine requirement.

Major-questions doctrine and federalism canon.  The petitioners argue that these canons of construction require Congress to speak clearly when delegating major economic and political questions to agencies that alter the balance between federal and state governments.  OSHA argues that neither of these canons apply and, in any event, Congress did speak clearly, as evidenced by the fact that it recently allocated $100 million to OSHA to carry out COVID-19 related worker protection activities.

Facts outside the administrative record.   While the OSHA and CMS mandates are supposed to be judged according to the record — which makes much of the factual discussion seem a little dated in this fast-moving pandemic — we’ll be interested to see whether the Omicron variant, the recent spike in cases, and other relatively recent developments show up at oral argument.

And, maybe, a few Constitutional issues.  While constitutional issues like the Commerce Clause and Non-Delegation Doctrine might appear tomorrow, we expect the statutory arguments to dominate the discussion—exactly as they did in the parties’ Supreme Court and Sixth Circuit briefing and in most Sixth Circuit opinions.

We’ll be interested to see how the opinions of Judge Stranch, Judge Larsen, Judge Sutton, and Judge Bush influence the Justices’ approach to the legal and factual questions.

© Copyright 2022 Squire Patton Boggs (US) LLP
For more about OSHA litigation, visit the NLR Coronavirus News section.

Two Recent Developments Promise to Shed Light on Accrual of BIPA Claims

In the aftermath of two recent appellate court decisions addressing when claims under the Illinois Biometric Information Privacy Act (“BIPA” or the “Act”) (740 ILCS 14/1 et seq.) accrue, it appears likely that the Illinois Supreme Court will need to provide clarity on this critical question. First, the Appellate Court of Illinois, First District, found in Watson v. Legacy Healthcare Financial Services, LLC, et al.  that claims under sections 15(a) and (b) of the Act accrue with each and every capture and use of a plaintiff’s biometric identifier or information. Second, in Cothron v. White Castle System, Inc. the Seventh Circuit Court of Appeals declined to directly address the issue of when a claim under BIPA accrues, and instead has certified the question for review by the Illinois Supreme Court. While the holding in Watson provides some clarity as to when certain BIPA claims accrue, it leaves open critical questions regarding how to calculate: (i) the number of BIPA violations; and (ii) monetary damages under the Act.

The Watson v. Legacy Healthcare Financial Services, LLC, et al. Decision

Plaintiff Brandon Watson sued Legacy Healthcare Financial Services, LLC, Lincoln Park Skilled Nursing Facility, LLC, and South Loop Skilled Nursing Facility, LLC (collectively, the “Defendants”) in March 2019, alleging that the Defendants violated BIPA by scanning the fingers or hands of their respective employees, including plaintiff, for timekeeping purposes. Plaintiff alleged that the scanning violated sections 15(a) and (b) of the Act, which place both restrictions and affirmative obligations on private entities related to biometric identifiers (such as fingerprints, voiceprints, retinal scans and facial geometry) and biometric information (e.g., information based on biometric identifiers to the extent used to identify an individual):

  • Private entities in possession of biometric identifiers or biometric information must develop a written policy, made available to the public, establishing a retention schedule and guidelines for destroying the information.  740 ILCS 14/15(a).
  • Private entities which collect, capture, purchase, receive or otherwise obtain biometrics must first inform the subject of that fact in writing, as well as the specific purpose and length of time for which the information will be retained, and must obtain a written release executed by the subject.  740 ILCS 14/15(b).

Plaintiff alleged that he began working for at least one of the Defendants in December 2012. Because the Act contains no provision as to when claims accrue or the applicable limitations period, Defendants moved to dismiss, arguing that Plaintiff’s claims accrued on the first day the Defendants allegedly collected his biometric information and Plaintiff’s claims were thus time-barred. In response, Plaintiff argued that his suit was not time-barred because his claims accrued with each alleged capture of his biometric information that Defendants obtained without providing notice and obtaining consent. The trial court granted the Defendants’ motion to dismiss, finding  that Plaintiff’s claims accrued with the initial scan of his finger or hand  in December 2012. Thereafter, the trial court granted Plaintiff’s Rule 304(a) motion for an interlocutory appeal.

The Appellate Court reversed and remanded, finding that a claim under the Act accrues after “each and every capture and use of plaintiff’s fingerprint or hand scan.” In reaching this result the Appellate Court analyzed the plain language of the Act and the legislative history of the Act, and accepted as true that the Defendants captured Plaintiff’s biometric information twice per day when he clocked in and out of work.

The Cothron v. White Castle System, Inc. Decision

Plaintiff Latrina Cothron sued White Castle System, Inc. (“White Castle”) alleging that White Castle violated BIPA when it required plaintiff to scan her finger in order to access work computers. Moreover, plaintiff alleged that White Castle disclosed the scans of her fingers to its third-party vendor as part of process to authenticate the finger scan and ultimately grant access to the work computers. Based on these allegations, plaintiff asserted claims under sections 15(b) and (d) of the Act. In addition to the obligations of section 15(b), outlined above, section 15(d) prohibits a private entity from disclosing, redisclosing or otherwise disseminating biometric information without consent.  740 ILCS 14/15(d).

White Castle moved for judgment on the pleadings, arguing that the suit was untimely since plaintiff’s claims accrued in 2008 when BIPA was enacted. The trial court denied White Castle’s motion, but certified its order for immediate appeal to the Seventh Circuit. In turn, the Seventh Circuit examined the arguments of both parties and ultimately concluded that the question of when a claim accrues under BIPA is a novel question which has not yet been addressed by the Illinois Supreme Court. As a result, the Seventh Circuit stayed proceedings in the Cothron matter and certified the question of when claims accrue under BIPA to the Illinois Supreme Court.

The Rulings’ Impact on Your Business

It is likely that it will take a ruling from the Illinois Supreme Court to provide further clarity on when claims under the Act accrue. In the interim, the Watson decision will obviously impact early BIPA case evaluations. It also, however, raises at least two unrelated issues that will likely be the subject of debate and litigation going forward.

First, Watson was based on the allegations in the complaint, without the benefit of discovery and additional information regarding the operation of the finger/hand scanning device(s) utilized by the Defendants.  Key to the decision is the Watson court’s conclusion that every use of the scanning device(s) results in the capture of Plaintiff’s biometric information, and the Court’s description of that capture as resulting in a permanent record. While that statement is likely based on allegations made in the complaint, it is possible, or even probable, that it is not factually accurate. Although variations exist, the scanning technology used in many biometric timekeeping devices creates only a single permanent record — from the very first scan of the individual’s finger or hand. Commonly, the later scans do not collect or store information, but only exist fleetingly as comparisons of the permanent, initial scan data. As a result, the applicability of the Watson decision may vary based on the actual operation of the scanning devices at issue in any single case.

Second, in response to Defendants’ concerns about the “ruinous” monetary damage awards that may result from the ruling in Watson, the Appellate Court went out of its way to note “that damages are discretionary[,] not mandatory” under BIPA. In so holding, the Appellate Court found that Section 20 of BIPA provides a list of possible damages, but notes that list constitutes what a “prevailing party may recover.” 740 ILCS 14/20 (emphasis added). The Appellate Court’s decision to highlight the discretionary nature of an award of monetary damages under BIPA stands in stark contrast to the position often taken by the plaintiffs’ bar. Indeed, the plaintiffs’ bar consistently asserts that the right to recover liquidated damages under BIPA is absolute given the Illinois Supreme Court’s 2019 decision in Rosenbach v. Six Flags Entm’t Corp. However, the Rosenbach decision merely found that once a plaintiff meets the basic statutory requirement of being “aggrieved,” he or she is merely “entitled to seek recovery” under Section 20. The Watson Court’s emphasis that monetary damages are discretionary under BIPA is likely to open new lines of discovery and argument regarding the calculation of damages, if any, sustained by a particular BIPA plaintiff and whether or not those damages justify the imposition of discretionary liquidated damages set forth in the Act.

Ultimately, every business should perform a critical analysis as to any business practice that potentially concerns biometrics (including employee timekeeping, identification procedures or security protocols). The failure to fully comply with BIPA, even when such a failure results in no actual injury to an individual, may lead to significant liability. Vedder Price attorneys are at the forefront in defending BIPA claims and counseling clients on BIPA-related policy and disclosure language.

© 2022 Vedder Price
For more articles on BIPA, visit the NLR section Cybersecurity, Media & FCC section.

Not So Fast! How Poor Planning Can Doom Your Chapter 11 Filing

A Texas bankruptcy court’s decision earlier this year to dismiss the National Rifle Association’s (“NRA”) chapter 11 bankruptcy case as a bad faith filing illustrates the perils of a poorly planned chapter 11 filing, and highlights the need, even in crisis situations, to establish solid objectives and develop a sound strategy prior to seeking relief under the Bankruptcy Code. In re Nat’l Rifle Ass’n of Am., 628 B.R. 262 (Bankr. N.D. Tex. 2021). Unique facts and circumstances notwithstanding, In re Nat’l Rifle Ass’n of Am. provides textbook examples of things you should not do when filing a corporate chapter 11 case.

In its opinion, the Northern District of Texas Bankruptcy Court highlighted recent events in the history of the NRA prior to the bankruptcy filing, including: (1) the New York Attorney General (“NYAG”) opening investigations into the NRA in 2017; (2) the New York Department of Financial Services urging insurers and financial institutions in April 2018, to evaluate whether their relationships with the NRA were harmful to their corporate reputations and jeopardized public safety; (3) multiple whistleblowers notifying the NRA Audit Committee in July 2018 about alleged misconduct by NRA management, including conflicts of interest of senior management and board members and improper reimbursement of living expenses for certain employees; and (4) the NYAG filing a complaint against the NRA in New York state court on August 6, 2020 seeking dissolution of the NRA (the “NYAG Action”).

Approximately 3 months after the NYAG Action, on November 23, 2020, the NRA retained counsel to advise them on bankruptcy and restructuring options. The very next day, the entity “Sea Girt, LLC” was formed, as “a transition vehicle to facilitate the NRA’s relocation to Texas.” Id at 267. At a board meeting on January 7, 2021, the NRA board approved the employment agreement of the NRA’s Executive Vice President Wayne LaPierre, which included language allowing Mr. LaPierre to “exercise corporate authority in furtherance of the mission and interests of the NRA, including without limitation to reorganize or restructure the affairs of the Association for the purposes of cost-minimization, regulatory compliance or otherwise.” Id. at 267-68. There was no discussion of bankruptcy or reorganization at the board meeting, and the board was never informed that the employment agreement authorized Mr. LaPierre to unilaterally file a bankruptcy petition for the NRA. A few days after the board meeting, on Jan. 15, 2021, the NRA and Sea Girt, LLC filed voluntary petitions for relief under Chapter 11.

Approximately one month into the bankruptcy case, multiple parties, including the NYAG, filed dispositive motions seeking various relief that the bankruptcy court categorized as generally falling into three buckets: (1) dismissal; (2) appointment of a chapter 11 trustee; or (3) appointment of an examiner. Id. at 270. In adjudicating the motions, the bankruptcy court adopted the Fifth Circuit’s flexible view that the term “cause” in Section 1112(b)(4) could include “a finding that the debtor’s filing for relief is not in good faith.” Id at 270.

The Court’s good faith analysis largely focused on the NRA’s reasons for filing bankruptcy. After evaluating the relevant arguments and evidence, the Court concluded that the real purpose for the bankruptcy filing was to avoid dissolution in the NYAG Action. The Court noted that although there was “some evidence that the NRA want[ed] to streamline litigation and control litigation costs,…” that did not appear to be “the real purpose” behind the bankruptcy filing. Id. at 278. On the contrary, there was testimony that the NRA could afford to pay its legal fees and there had not been any analysis done of the comparative cost of litigation outside of bankruptcy versus the cost of litigation within the bankruptcy case. While the question of “[w]hether the NRA’s desire to leave New York and reincorporate in Texas was a true reason for filing bankruptcy [was] a closer call,” the Court was not persuaded that the conditions faced by the NRA predating the NYAG Action were an existential threat and reason to file bankruptcy in order to move to Texas. Id. at 278. Testimony of the CFO, that “he was not aware of any reasons to file for bankruptcy” was also not supportive of the argument that the bankruptcy was filed for financial reasons. Id. at 279. In the Court’s view, the other reasons that the NRA gave for filing bankruptcy, such as “preserving the NRA as a going concern” could all be grouped under the general reason of avoiding the dissolution in the NYAG Action. Id. at 279.

For its subsequent analysis of whether avoiding the dissolution in the NYAG Action was a valid purpose, the Court conducted the 2-pronged inquiry used by the Third Circuit, namely: “(1) whether the petition serves a valid bankruptcy purpose and (2) whether the petition is filed merely to obtain a tactical litigation advantage.” Id. at 280. The Court reasoned that a lawsuit seeking a monetary judgment, which could be financially ruinous for a debtor, was different from a state enforcement action specifically seeking dissolution under that state’s laws that must satisfy certain requirements. The Court found the NRA case to be a bad faith filing because its purpose was (1) “to deprive the New York AG of the remedy of dissolution, which is a distinct litigation advantage” and “[to deprive] the state of New York of the ability to regulate not-for-profit corporations in accordance with its laws.” Id. at 281.

In considering whether appointment of a trustee or examiner was in the best interest of creditors, the Court noted “cringeworthy” facts such as the evidence of the NRA’s past misconduct, including deficiencies in financial disclosures by senior management. Id. at 283. Even more concerning to the Court was the “surreptitious manner in which Mr. LaPierre obtained and exercised authority to file bankruptcy for the NRA,” where he had excluded key people such as the CFO and the general counsel from the decision-making process. Id. at 284. The determination of whether or not to appoint a trustee or examiner was further complicated because the NRA’s mission was, “at times, political and polarizing” and because “[t]he NRA does not sell goods or services” it would be difficult to find the appropriate fiduciary to serve as trustee or examiner. Id. at 284. Touting progress the NRA had made in recent years resulting in more disclosure and self-reporting, the Court concluded that, “[o]utside of bankruptcy, the NRA can pay its creditors, continue to fulfill its mission, continue to improve its governance and internal controls, contest dissolution in the NYAG Enforcement Action, and pursue the legal steps necessary to leave New York.” Id. at 284-85.

In re Nat’l Rifle Ass’n of Am. vividly demonstrates the danger of hastily filing a chapter 11 case, and then formulating a narrative post-petition as to the reasons for the filing that are not supported by evidence. Profoundly damaging to the NRA’s position was the inconsistency between the NRA’s arguments in bankruptcy court and the NRA’s own publicly announced reasons for filing bankruptcy, including a posting on its NRA website which stated, “This action is necessitated primarily by one thing: the unhinged and political attack against the NRA by the New York Attorney General.” The Court also expressed frustration at the lack of clarity caused by conflicting testimony of witnesses about the purpose of the bankruptcy filing. When the CFO testifies there is no financial reason to file bankruptcy, how do you argue that the bankruptcy was filed to reorganize the debtor? Also detrimental to the NRA’s position were corporate governance failings where there was no vote or even any discussion by the Board about bankruptcy and restructuring options, and it was clear that the decision to file chapter 11 was made by one person. This case shows that, given the significant costs attendant to an imprudent bankruptcy filing that is later dismissed, it is essential to establish clear objectives, articulate a coherent strategy, and practice good corporate governance prior to filing a chapter 11 case.

Copyright ©2022 Nelson Mullins Riley & Scarborough LLP

Article By Zana Scarlett of Nelson Mullins

For more articles on Chapter 11, visit the NLR Bankruptcy & Restructuring section.

Conviction of Harvard Researcher for Chinese Ties Serves as Caution to Universities

Charles Lieber, former chair of the chemistry and chemical biology department at Harvard University, was convicted on December 21st by a jury on two counts of making false statements to federal authorities, two counts of making a false income tax return, and two counts of failing to file reports of foreign bank and financial accounts with the IRS due to his relationships with China’s Thousand Talents Program (TTP) and the Wuhan University of Technology (WUT). He received cash and living expenses from TTP and more than $1.5 million to establish a WUT research lab. Lieber opened an account at a Chinese bank into which WUT made salary deposits, but he did not report the existence of the account as required by U.S. law.

In a statement released by the U.S. Attorney’s Office for the District of Massachusetts following the verdict, Lieber was said to have assumed the role of “Strategic Scientist” for WUT, a position that he did not disclose, and served as a TTP contractor from at least 2012 through 2015. As the Department of Justice described TTP, “China’s Thousand Talents Plan is one of the most prominent Chinese talent recruitment plans designed to attract, recruit, and cultivate high-level scientific talent in furtherance of China’s scientific development, economic prosperity, and national security.”

Lieber will face maximum jail terms of up to three to five years for each of the counts for which he was convicted, as well as fines of up to $250,000 for each count. Lieber’s sentencing hearing has not yet been scheduled.

Lieber’s activities serve as just the most recent example of unlawful foreign involvement which negatively impacts U.S. higher education institutions and their personnel, research scientists, and affiliated research and fund-raising organizations. While Lieber’s actions appear to have been clearly intentional, government authorities have also voiced concern regarding the potential for inadvertent disclosures of valuable intellectual property to foreign agents by institutional researchers.

Higher education institutions will need to be prepared for enhanced federal scrutiny of their international relationships if the US Innovation and Competition Act (Senate) and the EAGLE Act (House) are adopted by Congress as appears possible next year. As a footnote, Reuters and The Guardian reported in November that China’s embassy in Washington, D.C. sent letters to executives urging them to oppose the Acts.

© Steptoe & Johnson PLLC. All Rights Reserved.

The Legal Challenges to the OSHA ETS and CMS Vaccine Mandate Move to the Supreme Court

On December 22, 2021, the Supreme Court of the United States issued orders granting review of legal challenges to the Occupational Safety and Health Administration’s COVID-19 Vaccination and Testing Emergency Temporary Standard (“OSHA ETS”) and the Centers for Medicare and Medicaid Services Omnibus COVID-19 Health Care Staff Vaccination Interim Final Rule (“CMS Vaccine Mandate”). In a rare move, the Supreme Court set an accelerated timeline for the cases, scheduling oral arguments in both cases on January 7, 2022.

Following a ruling out of the United States Court of Appeals for the Sixth Circuit on December 17, 2021, OSHA announced that it would not issue citations for non-compliance with any requirements of the OSHA ETS before January 10, 2022 and will not issue citations for noncompliance with testing requirements before February 9, 2022, so long as an employer is exercising reasonable, good faith efforts to come into compliance with the OSHA ETS. While it is unknown whether the Supreme Court will be able to issue a ruling by OSHA’s January 10, 2022 compliance date, the Supreme Court’s expedited schedule seems to indicate that it is attempting to give employers some finality concerning their obligations under the federal mandates.

Article By Lilian Doan Davis of Polsinelli PC

For more COVID-19 legal news, click here to visit the National Law Review.

© Polsinelli PC, Polsinelli LLP in California

Supreme Court to Consider Whether the FAA Mandates Arbitration of PAGA Actions

On Dec. 15, 2021, the United States Supreme Court granted certiorari in Viking River Cruises, Inc. v. Moriana, and likely will decide by summer 2022 whether the Federal Arbitration Act (FAA) preempts California public policy and requires enforcement of arbitration agreements that purport to waive an employee’s ability to pursue representative actions under the California Private Attorneys General Act (PAGA). Employers have been waiting for the Supreme Court to take up this issue and are watching the case with interest.

Currently, per the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, LLC, arbitration agreements that waive an employee’s right to pursue PAGA representative actions are considered void and unenforceable. In Iskanian, the California Supreme Court held the FAA does not preempt California state law prohibiting prospective PAGA waivers because PAGA actions are between the employer and the state, not the employee. Thus, the state of California is the real party in interest, not the employee bringing suit, and although the employee may have executed a binding arbitration agreement, the state of California did not. Thus, arbitration agreements that purport to waive the right, expressly or otherwise, to bring a PAGA representative action are not enforceable.

In Viking River, the employee filed a PAGA representative action seeking civil penalties for various alleged violations of the California Labor Code, despite signing an arbitration agreement with her employer agreeing to resolve all future employment-related disputes with the employer via individual arbitration. Relying on the agreement, the employer moved to compel the action to arbitration. The trial court denied the motion, and the Court of Appeal affirmed the denial citing California state law as articulated in Iskanian. The California Supreme Court subsequently denied the employer’s petition for review.

Viking River then petitioned the U.S. Supreme Court for certiorari, relying on the Supreme Court’s decisions in AT&T Mobility LLC v. Concepcion and Epic Systems Corp. v. Lewis. These decisions held that courts may not disregard bilateral arbitration agreements or reshape traditional individualized arbitration by mandating class-wide arbitration procedures without all parties’ consent. Viking River argued the Supreme Court needed to review the case to reaffirm the FAA and national policy in favor of arbitration. Viking River further argued review was necessary to ensure that Concepcion and Epic promote bilateral arbitration, rather than simply result in “representational litigation” under PAGA by those who agreed to arbitrate individually. In granting review, the Supreme Court will decide “[w]hether the Federal Arbitration Act requires enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims, including under PAGA.”

This will be a closely watched decision for both sides of the bar and will likely have a groundbreaking effect on California employment litigation. Should the Supreme Court decide in Viking River’s favor, PAGA-only actions, which have become the preference of California plaintiffs’ attorneys in the face of arbitration agreements containing class action waiver provisions, will largely become a thing of the past for those employers who mandate individual arbitration for employees. Although it is by no means certain how the Supreme Court will decide this issue, employers should certainly be ready to revisit any arbitration agreements with California employees and consider what if any changes the ultimate ruling may warrant.

Article By Ashley M. Farrell Pickett and Radha D.S. Kulkarni of Greenberg Traurig, LLP

For more litigation legal news, click here to visit the National Law Review.
©2021 Greenberg Traurig, LLP. All rights reserved.

California Supreme Court Cases Employers Should Be Watching in 2022

The California Supreme Court has been busy in 2021 deciding cases that affect employers from how to pay meal and rest period penalties to when the statute of limitations for a failure to promote runs.

While the state’s high court answered some big questions in this last year, they still have several cases pertaining to employment law awaiting their attention.

Here are the cases employers should be watching in the new year and why.

People ex rel. Garcia-Brower v. Kolla’s Inc.

In this case, a complainant filed a timely retaliation complaint with the Division of Labor Standards Enforcement (“DLSE”) claiming immediate termination after complaining about non-payment of wages. Her complaint did not allege any disclosure to a governmental agency, but the retaliatory act of termination upon her direct complaint to her employer. The DLSE undertook an investigation and determined that respondents had violated several Labor Code sections, notably 1102.5 (“Section 1102.5”), California’s whistleblower statute. The DLSE notified the parties involved of its determination on December 22, 2015. Respondents were ordered to do several things, including paying the complainant lost wages and civil penalties of $20,000 each for violations of sections 1102.5 and 98.6. Respondents never complied.

On October 17, 2017, the Labor Commissioner filed an enforcement action against Respondents under the authority of section 98.7, subdivision (c)(1)5, alleging violations of these statutory provisions. Eventually, through a lack of response by the employer-defendant, the Labor Commissioner sought to take a default judgment.

The trial court, however, determined that the Labor Commissioner had not stated a claim under section 1102.5, because the complainant had not approached a governmental agency until after her termination. The trial court found that retaliation under the statute required the complainant to have been terminated as a result of disclosure to a governmental agency, which was not alleged. The trial court also found insufficient evidence for the claimant’s unpaid wages, and that the penalties under Section 98.6 were not appropriate.

The Court of Appeal disagreed with the trial court’s reasoning, but nevertheless affirmed the denial of Section 1102.5 claim as it found the after-termination complaint to be defective. It also reversed as to the penalties awarded under Section 98.6 and remanded that portion of the judgment.

The question before the California Supreme Court is limited to whether Labor Code section 1102.5, subdivision (b), which protects an employee from retaliation for disclosing unlawful activity, applies when the information is already known to that person or agency.

Why Employers Should Watch This Case

Depending on the direction the California Supreme Court takes, its holding will affect the burden on employers defending against whistleblower claims – especially those arising out of allegations that an employee told an employer or agency information that the employer or agency was already aware of.

Grande v. Eisenhower Medical Center

FlexCare, LLC (“FlexCare”), a temporary staffing agency, assigned Plaintiff to work as a nurse at Eisenhower Medical Center (“Eisenhower”). Plaintiff alleged that during her employment at Eisenhower, FlexCare and Eisenhower failed to ensure she received the required meal and rest periods, wages for certain periods she worked, and overtime wages. She then filed a class-action lawsuit on behalf of FlexCare employees assigned to hospitals throughout California. Plaintiff’s claims were based solely on her work on assignment to Eisenhower. FlexCare settled with the class and plaintiff executed a release of claims. The trial court entered a judgment incorporating the settlement agreement.

A year later, Plaintiff brought a second class action suit against Eisenhower, who had not been named in the previous lawsuit, alleging the same labor law violations. FlexCare intervened in the action asserting Plaintiff could not bring the separate lawsuit against Eisenhower because she had settled her claims in the prior class action.

The trial court held a limited trial on the issue of the propriety of the lawsuit and ruled that Eisenhower was not a released party under the settlement agreement. Accordingly, Eisenhower could not avail itself of the doctrine of res judicata because the hospital was neither a party to the prior litigation nor in privity with FlexCare. The Court of Appeals agreed with the trial court.

Why Employers Should Watch This Case

This case could affect staffing agency employers who may want to utilize broad releases if their “clients” are not also named to avoid duplicative litigation – for which they may have to pay twice – through indemnity clauses.

Lawson v. PPG Architectural Finishes, Inc.

This case will explore whether the evidentiary standard set forth in Labor Code section 1102.6 (“Section 1102.6”) replaces the McDonnell Douglas test as the relevant evidentiary standard for retaliation claims brought under section 1102.5.

In this case, Defendant was a manufacturer of paint, stains, caulks, and other products. Plaintiff Lawson (“Lawson”) was a territory manager whose duties included merchandising and claims that he was directed by his supervisor to handle a product in a way that fraudulently removed a slow-selling product from its inventory. Lawson told his supervisor he would not do this, then reported the directive to the company’s ethics hotline on two separate occasions. The second report to the ethics hotline resulted in an investigation. During this time, Lawson received poor ratings for his work, was placed on a performance improvement plan, and eventually, Defendant terminated his employment.

Lawson then filed a complaint against the company in the United States District Court, alleging that he was retaliated against as a whistleblower.

The trial court applied the McDonnell Douglas test, which employs burden-shifting between the plaintiff and the employer. This test originated in the context of Title VII, the federal statute governing workplace discrimination, harassment, and retaliation. The trial court concluded that Lawson failed to carry his burden to raise triable issues of fact regarding pretext and granted Defendant’s motion for summary judgment.

On appeal, Lawson argued to the 9th Circuit that the trial court should have applied the evidentiary standard outlined in Section 1102.6. Section 1102.6 states that once it has been demonstrated by a preponderance of the evidence that the whistleblower activity was a contributing factor in the retaliation against the employee, the employer’s burden of proof is to demonstrate by clear and convincing evidence that the alleged action would have occurred for legitimate, independent reasons.

In its question to the California Supreme Court, the 9th Circuit noted that application of the McDonnell Douglas test to whistleblower claims under Labor Code section 1102.5 “seems to ignore [a] critical intervening statutory amendment” by which the California legislature established the evidentiary burdens of the parties participating in a civil action or administrative hearing involving a violation of the statute. Though this statement by the Circuit seems like a decision, the 9th Circuit pointed out three published California appellate court decisions that expressly applied McDonnell Douglas after the amendment.

This contradiction between California’s statute and the court rulings is the root of the 9th Circuit’s question.

Why Employers Should Watch This Case

If the California Supreme Court rules that the evidentiary requirement under Section 1102.6 applies, disposing of whistleblower retaliation claims prior to trial will become extremely difficult due to the high clear and convincing evidentiary standard imposed on the employer.

Naranjo v. Spectrum Security Services, Inc.

This case involves a class of security guards who alleged meal break violations and sought premium wages, waiting time penalties, inaccurate pay stub penalties, and attorney’s fees.

The Court of Appeal held that unpaid premium wages for meal period violations did not entitle employees to pay stub penalties or waiting time penalties.

Why Employers Should Watch This Case

This case will resolve a long-standing debate on whether waiting time penalties are recoverable for meal and rest period violations. If the California Supreme Court disagrees with the lower courts, it will increase potential penalties for California meal and rest period violations, as violations could be compounded by alleged pay stub penalties and waiting time penalties.

Article By Leonora M. Schloss and Karen Luh of Jackson Lewis P.C.

For more litigation and legal news, click here to visit the National Law Review.

Jackson Lewis P.C. © 2021

BREAKING: Seventh Circuit Certifies BIPA Accrual Question to Illinois Supreme Court in White Castle

Yesterday the Seventh Circuit issued a much awaited ruling in the Cothron v. White Castle litigation, punting to the Illinois Supreme Court on the pivotal question of when a claim under the Illinois Biometric Privacy Act (“BIPA”) accrues.  No. 20-3202 (7th Cir.).  Read on to learn more and what it may mean for other biometric and data privacy litigations.

First, a brief recap of the facts of the dispute.  After Plaintiff started working at a White Castle in Illinois in 2004, White Castle began using an optional, consent-based finger-scan system for employees to sign documents and access their paystubs and computers.  Plaintiff consented in 2007 to the collection of her biometric data and then 11 years later—in 2018—filed suit against White Castle for purported violation of BIPA.

Plaintiff alleged that White Castle did not obtain consent to collect or disclose her fingerprints at the first instance the collection occurred under BIPA because BIPA did not exist in 2007.  Plaintiff asserted that she was “required” to scan her finger each time she accessed her work computer and weekly paystubs with White Castle and that her prior consent to the collection of biometric data did not satisfy BIPA’s requirements.  According to Plaintiff, White Castle violated BIPA Sections 15(b) and 15(d) by collecting, then “systematically and automatically” disclosing her biometric information without adhering to BIPA’s requirements (she claimed she did not consent under BIPA to the collection of her information until 2018). She sought statutory damages for “each” violation on behalf of herself and a putative class.

White Castle before the district court had moved to dismiss the Complaint and for judgment on the pleadings—both of which motions were denied.  The district court sided with Plaintiff, holding that “[o]n the facts set forth in the pleadings, White Castle violated Section 15(b) when it first scanned [Plaintiff’s] fingerprint and violated Section 15(d) when it first disclosed her biometric information to a third party.”  The district court also held that under Section 20 of BIPA, Plaintiff could recover for “each violation.”  The court rejected White Castle’s argument that this was an absurd interpretation of the statute not in keeping with legislative intent, commenting that “[i]f the Illinois legislature agrees that this reading of BIPA is absurd, it is of course free to modify the statue” but “it is not the role of a court—particularly a federal court—to rewrite a state statute to avoid a construction that may penalize violations severely.”

White Castle filed an appeal of the district court’s ruling with the Seventh Circuit.  As presented by White Castle, the issue before the Seventh Circuit was “[w]hether, when conduct that allegedly violates BIPA is repeated, that conduct gives rise to a single claim under Sections 15(b) and 15(d) of BIPA, or multiple claims.”

In ruling yesterday this issue was appropriate for the Illinois Supreme Court, the Seventh Circuit held that “[w]hether a claim accrues only once or repeatedly is an important and recurring question of Illinois law implicating state accrual principles as applied to this novel state statute.  It requires authoritative guidance that only the state’s highest court can provide.”  Here, the accrual issue is dispositive for purposes of Plaintiffs’ BIPA claim.  As the Seventh Circuit recognized, “[t]he timeliness of the suit depends on whether a claim under the Act accrued each time [Plaintiff] scanned her fingerprint to access a work computer or just the first time.”

Interestingly, the Seventh Circuit drew a comparison to data privacy litigations outside the context of BIPA, stating that the parties’ “disagreement, framed differently, is whether the Act should be treated like a junk-fax statute for which a claim accrues for each unsolicited fax, [], or instead like certain privacy and reputational torts that accrue only at the initial publication of defamatory material.”

Several BIPA litigations have been stayed pending a ruling from the Seventh Circuit in White Castle and these cases will remain on pause going into 2022 pending a ruling from the Illinois Supreme Court.  While some had hoped for clarity on this area of BIPA jurisprudence by the end of the year, the Seventh Circuit’s ruling means that this litigation will remain a must-watch privacy case going forward.

Article By Kristin L. Bryan of Squire Patton Boggs (US) LLP

For more data privacy and cybersecurity legal news, click here to visit the National Law Review.

© Copyright 2021 Squire Patton Boggs (US) LLP

Court Rejects Netflix’s Challenge to Poaching Injunction

In the latest blow against Netflix’s aggressive recruiting practices, a California appellate court has affirmed a trial court’s injunction against Netflix and in favor of Twentieth Century Fox Film Corporation (“Fox”), thus permanently barring the streaming giant from poaching Fox executives by inducing them to breach their fixed-term employment contracts.

Netflix challenged the injunction, which was issued two years ago under California’s Unfair Competition Law (“UCL”), on two grounds. Netflix argued that there are triable issues of fact as to whether: (1) Fox had suffered damages; and (2) Fox’s employment contracts were void as against public policy. The Court of Appeal rejected both arguments, finding that the extent of damages to Fox was not relevant to its UCL claim. The Court also rejected Netflix’s public policy arguments, noting that there is well-settled law that fixed-term contracts are beneficial to both employers and employees and that, in any event, the challenged contractual provisions can be severed, even if they are in any sense unenforceable or unlawful.

The Court of Appeal also rejected Netflix’s challenges to the trial court’s permanent injunction, which barred Netflix from soliciting employees who are subject to fixed-term employment contracts with Fox or inducing such employees to breach their fixed-term employment contracts. Specifically, the Court rejected the argument that the injunction was vague or overbroad because Netflix had failed to explain the basis for the objection at the summary judgment hearing, despite having been given ample opportunity to do so. The Court also rejected Netflix’s argument that the injunction resulted in specific performance of personal services contracts, pointing out that the injunction only applied to Netflix’s tortious conduct—and did not bind any current or former Fox executives.

This decision follows a similar ruling late last year, when a trial court ruled in favor of our client Viacom in its anti-poaching lawsuit against Netflix.

A holding the other way for Netflix could have upended the way California employers solicit and retain employees, especially in the entertainment industry, where fixed-term employment agreements are relatively commonplace. Although the recent Court of Appeal decision is unpublished, it presumably sends a strong message to those who would poach the employees of a competitor who are subject to fixed-term employment agreements.

Article By Anthony J Oncidi, Philippe A. Lebel, and Dixie M. Morrison of Proskauer Rose LLP

For more labor and employment legal news, click here to visit the National Law Review.

© 2021 Proskauer Rose LLP.