Category: Litigation

U.S. Supreme Court Raises Standard for Labor Board When Seeking 10(j) Injunctions

The U.S. Supreme Court issued a decision directing district courts to use the traditional four-part test when evaluating whether a preliminary injunction should issue at the request of the National Labor Relations Board pending litigation of a complaint under the National Labor Relations Act. No. 23-367 (June 13, 2024).

The decision settles the split among the federal circuit courts over the standard that should be applied when the Board files a motion for a “10(j)” injunction, named for the section of the Act that authorizes the Board to seek injunctive relief. Circuit courts were split on which test should apply: the traditional four-part test, a more lenient two-part test, or a hybrid of the two.

The Court’s decision raises the bar for the Board, requiring it to meet each prong of the four-part test for a court to grant an injunction. In particular, it will be more difficult for the Board to establish it is “likely to succeed on the merits,” as opposed to the more lenient standard espoused by the Board that “there is reasonable cause to believe that unfair labor practices have occurred.”

The Court vacated and remanded the case to the U.S. Court of Appeals for the Sixth Circuit to reevaluate the merits of the injunction request under the four-part test.

10(j) Injunctions

Section 10(j) of the Act allows the Board to seek preliminary injunctions before federal district courts against both employers and unions to stop alleged unfair labor practices during the pendency of the Board’s administrative processing of an unfair labor practice charge. Section 10(j) authorizes a district court “to grant to the Board such temporary relief … as it deems just and proper.”

The requests are rare; the Board has sought only 20 such injunctions since 2023, according to the Board’s website. Nonetheless, the standard a court will use in evaluating the injunction request has been determinative of whether the relief was granted.

Prior Standards

The U.S. Court of Appeals for the Sixth Circuit, as in this case, used a two-part test to assess whether the Board was entitled to an injunction. The two-part test examined whether “there is reasonable cause to believe that unfair labor practices have occurred,” and “whether injunctive relief is ‘just and proper.’” McKinney v. Ozburn-Hessey Logistics, LLC, 875 F.3d 333 (2017). The Supreme Court noted in its latest decision that the Board could establish reasonable cause “by simply showing that its ‘legal theory [was] substantial and not frivolous.’”

Conversely, other courts, such as the U.S. Court of Appeals for the Seventh and Eighth Circuits applied the four-part test used for preliminary injunctions in traditional litigation settings set forth in Winter v. Natural Resources Defense Council, 555 U.S. 7 (2008). Under the Winter framework, a party seeking injunctive relief must “make a clear showing” that:

  1. He is likely to succeed on the merits;
  2. He is likely to suffer irreparable harm in the absence of preliminary relief;
  3. The balance of equities tips in his favor; and
  4. An injunction is in the public interest.

New Standard for Labor Board

In holding that the four-part test applies to 10(j) injunction requests by the Board, the Court declined to allow Section 10(j) language “to supplant the traditional equitable principles governing injunctions.” Rather, courts should apply standard principles involved in granting injunctive relief, not 10(j)’s “discretion-inviting directive.”

The Court explained that the reasonable-cause standard in the two-part test “goes far beyond simply fine tuning the traditional criteria to the Section 10(j) context—it substantively lowers the bar for securing a preliminary injunction by requiring courts to yield to the Board’s preliminary view of the facts, law, and equities.” It noted there is a substantial difference between the “likely”-to-succeed-on-the-merits standard versus a finding that the charge was “substantial and not frivolous.” Under the “less exacting” standard, courts could evaluate injunction requests giving significant deference to the Board under even a “minimally plausible legal theory” without assessing conflicting facts or questions of law.

Accordingly, the Board must satisfy the traditional standard that requires it to make a clear showing it is likely to succeed on the merits of the claim under a valid theory of liability.

The Court’s decision to standardize 10(j) injunction requests not only raises the Board’s burden of proof, but it creates more consistency across district courts at a time employers increasingly face injunction requests by an activist Board general counsel.

Jackson Lewis P.C. © 2024

Update on FTC Noncompete Ban: Court Challenges Begin

On April ­­23 we reported on the Federal Trade Commission’s vote to ban almost all non-competition agreements in the United States. Within hours of that vote, Ryan LLC, a global tax consulting firm headquartered in Dallas, filed a lawsuit in the U.S. District Court for the Northern District of Texas challenging the FTC’s authority to issue such a rule.

The U.S. Chamber of Commerce has been allowed to intervene in that case and will join in the challenge to the FTC ban.

Ryan’s claims are that:

  1. The FTC lacks the legal authority to promulgate such a rule.
  2. Even if Congress had granted that authority by statute, such a grant would be an unconstitutional delegation of legislative authority to the executive branch, in violation of Article 1 of the U.S. Constitution.
  3. The FTC Act is unconstitutional because it limits the president’s authority to remove subordinates (in this case, FTC Commissioners).
  4. The FTC promulgated the rule in violation of the Administrative Procedure Act because it failed to establish a factual basis for the rule.
  5. The rule is retroactive in purporting to invalidate all existing non-competition agreements, but the FTC has no authority to issue retroactive rules.

Based on our review of the pleadings filed thus far in the case, we think that the U.S. Chamber and its allies agree that these are the correct arguments and that they will file a brief supporting them.

Ryan is asking the court for two things: a stay of the effective date of the rule, and preliminary and permanent injunctions barring the FTC from enforcing it. The case is on an expedited schedule, with briefing to be completed by June 12 and a ruling expected on the pending motion by July 3.

Given that the rule’s effective date is September 4, if the court can meet that schedule, employers should have sufficient time to take the necessary steps to comply, if the court allows the rule to go into effect.

However, we would advise employers to start identifying all employees who are subject to an existing non-competition agreement, so they can move quickly to meet the notice requirements over the summer, should that become necessary.

©2024 Pierce Atwood LLP. All rights reserved.
For more on the FTC Noncompete Ban, visit the NLR Labor & Employment section.

No Arbitration for Lead Buyer: Consent Form Naming Buyer Does Not Give Buyer Right to Enforce Arbitration in Tcpa Class Action

A subsidiary of Move, Inc. bought a data lead from Nations Info, Corp. off of its HudHomesUsa.org website. The subsidiary made an outbound prerecorded call resulting in a TCPA lawsuit against Move. (Fun.)

Move, Inc. moved to compel arbitration arguing that since its subsidiary was named in the consent form–it argued the arbitration clause necessarily covered it because the whole purpose of the clause was to permit parties buying leads from the website to compel TCPA cases to arbitration.

Good argument, but the court disagreed.

In Faucett v. Move, Inc. 2024 WL 2106727 (C.D. Cal. April 22, 2024) the Court refused to enforce the arbitration clause finding that Move, Inc. was not a signatory to the agreement and could not enforce it under any theory.

Most interestingly, Move argued that a motivating purpose behind the publisher’s arbitration clause was to benefit Move because Nations Info listed Opcity —Move’s subsidiary—in the Consent Form as a company that could send marketing messages to Hud’s users. (Mot. 1–2.)

But the Court found the Terms and Consent Form were two different documents, and accepting the one did not change the scope of the other.

The Court also found equitable estoppel did not apply because Plaintiff was not moving to enforce the terms of the agreement. Quite the contrary, Plaintiff denied any arbitration (or consent) agreement existed.

So Move is stuck.

Pretty clear lesson here: lead buyers should make sure the arbitration provisions on any website they are buying leads from includes third-parties (like the buyer) as a party to the clause. Failing to do so may leave the lead buyer stuck without the ability to enforce the provision–and that can lead to a massive class action with potential exposure in the hundreds of millions or billions of dollars.

Lead buyers are already forcing sellers to revise their flows in light of the FCC’s new one to one consent rules. So now would be a GREAT time to revisit requirements around arbitration provisions as well.

Something to think about.

© 2024 Troutman Amin, LLP
For more news on Telephone Lead Litigation, visit the NLR Communications, Media & Internet section.

Fourth Circuit Holds Firm Against Expansion of Religion-Based Defenses to Discrimination (US)

What happened in the interim that ended this beloved educator’s decorated teaching career? In 2014, shortly after North Carolina recognized same-sex marriage, Mr. Billard posted on his personal Facebook page that he and his partner of fourteen years were engaged to be married.

Lonnie Billard was a well-loved and decorated drama and English teacher at Charlotte Catholic High School (CCHS) in Mecklenburg County, North Carolina. He was named Teacher of the Year in 2012 after serving the Catholic high school’s students for eleven years.

Two years later, CCHS told Mr. Billard he was not welcome back as a teacher.

CCHS has never denied why it fired Mr. Billard: his plans to marry violated the Mecklenburg Diocese’s policy against teachers engaging in conduct contrary to the moral teachings of the Catholic faith. Mr. Billard filed a charge with the Equal Employment Opportunity Commission (EEOC) alleging sex discrimination in employment. The EEOC issued a notice of right to sue. Mr. Billard sued in federal court. He won and was awarded stipulated damages.

If that were the end of the story, although a frustrating one for Mr. Billard and his husband, the case would hardly be newsworthy. Why the case warrants attention is the defense that CCHS did not assert, and why.

The ‘Ministerial Exception’

Throughout the second half of the twentieth century, a judicially crafted concept known as the “ministerial exception” emerged among federal appellate courts: Religious institutions may discriminate in their treatment of certain employees, notwithstanding Title VII, provided that the employee plays a vital ministerial employment role or is involved in ecclesiastical matters. Indeed, ministerial exception is a misnomer because the exception is not limited to those employees holding titles of independent religious significance (e.g., priest, pastor, rabbi, imam), but also applies to employees holding important positions within churches and other religious institutions. The Supreme Court recognized the ministerial exception in Hosanna-Tabor Evangelical Lutheran Church & Sch. v. EEOC, 565 U.S. 171 (2012). Although the Court refused to answer directly the question of who is and is not a minister, it found on the facts of the case before it that a “called teacher” with the title of “Minister of Religion, Commissioned” fit the bill.

Hosanna-Tabor was binding law when Mr. Billard filed suit in 2017. CCHS’s obvious defense to Mr. Billard’s allegations of sex discrimination was that he, as a Catholic school teacher engaged to teach his students in accordance with diocesan mission, fell within the ministerial exception, but in an unusual turn of events, CCHS waived this argument. In fact, CCHS stipulated with Mr. Billard that it would not argue that his job duties qualified him for the ministerial exception. Why? CCHS claims that it waived the ministerial exception defense because it wanted to avoid the burden of discovery around the issue of whether Mr. Billard’s role was sufficiently ministerial. (More on that below.) Since CCHS waived the best defense available to it and unequivocally admitted why it fired Mr. Billard, it’s no wonder he prevailed.

The Appeal

On appeal, CCHS propounded four affirmative defenses it had advanced without success at the trial court level – none of which included the ministerial exception. First, CCHS asserted two First Amendment-based defenses: the “church autonomy” doctrine and freedom of association. The trial and appellate courts quickly disposed of both theories, concluding that CCHS’s “church autonomy” argument was another way of trying to dress up the ministerial exception and, as to freedom of association, the courts found “no precedent for privileging a right of expressive association over anti-discrimination laws.” CCHS also asserted a statutory defense under the Religious Freedom Restoration Act (RFRA), but the courts made quick work of this too, finding that the RFRA does not apply to suits between private parties.

But CCHS’s fourth and final argument, and by far its most controversial, was that the trial court should have exonerated it under Title VII’s religious exemption. This notion, which is different than the First Amendment-inspired ministerial exception and derives from the plain text of Title VII, exempts certain religious organizations from Title VII’s non-discrimination strictures “with respect to the employment of individuals of a particular religion.” 42 U.S.C. § 2000e-1(a). For instance, a Baptist church may favor hiring a Baptist minister or liturgical worship leader over a Methodist or Lutheran candidate, regardless of their respective qualifications. But the religious exemption has only ever been applied as a defense to claims of religious discrimination. Seeking to overturn decades of precedent, CCHS argued in Billard for an unprecedented expansion of the exemption, one that would permit religious organizations to discriminate even on the basis of sex, race or national origin as long as religious belief motivated the employment decision. At oral argument before the Fourth Circuit Court of Appeals, CCHS conceded that its proffered interpretation of the religious exemption would permit discrimination against not only the relatively small number of employees of religious institutions with a claim to ministerial status, but also the hundreds of thousands of groundskeepers, custodians, bus drivers, musicians and administrative personnel that work for such institutions but whose duties are non-ecclesiastical.

An interpretation like that for which CCHS called would seriously erode protections against discrimination. For instance, under CCHS’s interpretation of the religious exemption, if a religious employer asserted as a principle of its faith that women should not work outside the home, it should be permitted to discriminate on the basis of sex. Likewise, under CCHS’s reading of the exemption, a religious employer asserting a faith-based reason for preferring one race over another would be exempt from Title VII consequences. And, to close the loop, if a religious employer held as a religious tenet that being gay or marrying one’s gay partner was a moral lapse, then it should be permitted to discriminate on the basis of sexual orientation.

The Fourth Circuit balked at CCHS’s statutorily ungrounded argument for an expansion of the religious employer exemption. The text of Title VII is ambiguous and exempts religious organizations “with respect to the employment of individuals of a particular religion”; it does not protect discrimination against individuals because of religion. The appellate court was also unimpressed by CCHS’s attempt to force a determination on these grounds by earlier waiving the ministerial exception. Therefore, the Fourth Circuit set aside the parties’ waiver and found sua sponte (meaning on the Court’s own initiative), that CCHS was not liable for discrimination for terminating Mr. Billard because he was, notwithstanding his secular teaching subjects, “a messenger of CCHS’s faith.”

The Fourth Circuit explained that it was constrained to reach this outcome based on developing jurisprudence interpreting the ministerial exception. In the years since Mr. Billard filed suit, the Supreme Court expanded on Hosanna Tabor in Our Lady of Guadalupe Sch. v. Morrissey-Berru, finding in 2020 that two secular subject teachers at religious schools were nonetheless ministers within the ministerial exception as they were entrusted with educating and forming students in the school’s faith. (Notably, CCHS was represented by The Becket Fund for Religious Liberty. The Becket Fund was also lead counsel in Our Lady of Guadalupe, a fact which raises a few questions about the plausibility of CCHS’s explanation for waiving the ministerial exception. The Becket Fund claims to be a “leader[ ] in the fight for religious liberty … at home and abroad,” and has fought against COVID-19 mandates, contraception care and LGBT and unmarried parent foster and adoption rights.)

The appellate court’s decision undoubtedly provides little comfort to Mr. Billard, who is now spending his retirement with his husband whom he married in May 2015. But even though the Fourth Circuit reversed judgment in his favor and instructed the trial court to enter judgment in CCHS’s favor on the grounds that the ministerial exception protected the school, it at least rejected CCHS’s request for unfettered license to discriminate on any basis so long as it articulated a faith-based motive for doing so. As CCHS proved victorious and therefore lacks grounds to appeal to the Supreme Court, for now, religious employers remain insulated from civil interference with decisions about the appointment and removal of persons in positions of theological significance—even high school drama teachers—but may not use purported religious beliefs to justify discrimination on other grounds.

© Copyright 2024 Squire Patton Boggs (US) LLP
For more news on Religious-based Discrimination Defenses, visit the NLR Civil Rights section.

How to Recover Attorneys’ Fees in a Schedule A Trademark Case in the Northern District of Illinois

In recent years, a substantial number of “Schedule A” trademark infringement cases have been filed in the Northern District of Illinois. In such a case, the trademark owner may file a trademark infringement complaint against a number of defendants, with the complaint identifying the defendants as “The Individuals, Corporations, Limited Liability Companies, Partnerships and Unincorporated Associations Identified on Schedule A hereto.” [See, e.g., Opulent Complaint]

The trademark owner may file Schedule A separately from the complaint with a request to the Court that the schedule be placed under seal. Sometimes, trademark owners file the entire complaint under seal. After filing sealed pleadings that shield the defendants’ identities, the trademark owner may then file ex parte motions for temporary restraining orders (“TROs”) against the secretly-named defendants. Because the proceedings are ex parte, the alleged infringer is not given notice of the proceedings or an opportunity to appear. If the Court grants the TRO, the trademark owner may then present the TRO to online marketplaces with a demand that the marketplaces immediately stop selling the allegedly infringing goods. The result may be that an alleged infringer may find all of its activity frozen by the online marketplace, including a freeze on the alleged infringer’s cash held with the online marketplace. This may create cashflow problems for the alleged infringer and prevent the alleged infringer from making future sales. Because its identity is sealed by the court, an alleged infringer may first learn of the TRO after its accounts are frozen.

Schedule A cases appear to be concentrated in the Northern District of Illinois because judges in that district have been receptive to granting ex parte relief. See, A. Anteau, “The Northern District of Illinois v. the Internet: How Chicago Became the Center of Schedule A Trademark Infringement Litigation”; Law.Com, December 19, 2023. At least two judges in that district even provide templates for TROs, preliminary injunctions and default judgments in Schedule A cases. See Northern District of Illinois (uscourts.gov); Northern District of Illinois (uscourts.gov). The justification for the ex parte nature of these proceedings is that it, if notice was required, online counterfeiters (frequently from China) could hide their assets or move their counterfeit products to new sites as soon as an infringement case was filed.

Notwithstanding the foregoing, remedies and relief do exist if an entity is the subject of a wrongfully obtained ex parte TRO. Recently, Ya Ya Creations, a defendant in a Schedule A trademark case, obtained an attorneys’ fees award against a plaintiff that failed to conduct a proper investigation before naming two Ya Ya-affiliated entities as alleged infringers in a case filed in the Northern District of Illinois. [Award of Fees] The dispute began in August 2021, when the plaintiff filed a lawsuit against Ya Ya for trademark infringement and a variety of other causes of action in the Eastern District of Texas. The Texas court transferred the case to the Central District of California in April of 2022. Four months after the transfer, the plaintiff filed a very similar lawsuit against Ya Ya in the Middle District of Florida. On May 26, 2023, the Florida court transferred the case to the Central District of California, and then the CD California consolidated the cases due to the similarity of the facts and claims. On September 26, 2023, the plaintiff filed yet another lawsuit. This time, the plaintiff filed a Schedule A trademark infringement case against a number of defendants in the Northern District of Illinois. In the Schedule A case, the plaintiff named two entities affiliated with Ya Ya as alleged infringers.

Notwithstanding the litigation history between the parties, the plaintiff obtained an ex parte TRO against Ya Ya in the Northern District of Illinois. Ya Ya first learned about the TRO after the court issued it and after an online marketplace froze Ya Ya’s accounts.

Ya Ya’s first step in seeking redress was to file an emergency motion asking the court to dissolve the ex parte TRO. [Ya Ya Motion to Dissolve TRO] Ya Ya argued that, because the parties were actively litigating against each other in California, the plaintiff had no basis to seek ex parte relief against Ya Ya or its affiliated entities without notifying Ya Ya of the proceedings. Ya Ya also argued that the plaintiff’s ex parte TRO was a transparent attempt to gain a litigation advantage in the California cases to either leverage a settlement, force Ya Ya into a position where it could not even pay its lawyers to mount a defense, or force Ya Ya to file for bankruptcy. In response to Ya Ya’s motion to dismiss, the plaintiff agreed to dismiss all of its claims against the Ya Ya-affiliated entities.

Ya Ya’s next step was to file a motion for recovery of the attorneys’ fees it expended in the Northern District of Illinois proceedings. [Ya Ya Request for Reimbursement of Attorneys’ Fees]. In response, the plaintiff argued that it was not obligated to pay Ya Ya’s attorneys’ fees, because it did not know the entities it named in the Northern District of Illinois lawsuit were affiliated with Ya Ya. But the court rejected that argument. The court concluded that, pursuant to Federal Rule of Civil Procedure 11, a court may award attorneys’ fees incurred while defending an ex parte TRO when (1) the TRO caused “needless delay” and unnecessarily “increased the cost of litigation,” or (2) the TRO was obtained by pleadings that were not “well grounded in fact” or made after “reasonable inquiry.” The Court determined that plaintiff could have avoided increasing the costs of litigation if it had conducted a reasonable inquiry to determine if the two entities were affiliated with Ya Ya, but it failed to do so. As a result, the Court awarded Plaintiff to pay Ya-Ya almost $100,000 in attorneys’ fees.

Trademark litigators should be aware that judges in the Northern District of Illinois have been receptive to granting ex parte TROs in trademark cases. If you represent a client that is the subject of an improperly granted ex parte TRO, be prepared to move quickly to dissolve the TRO and consider whether you have a basis to move for an award of attorneys’ fees.

Copyright © 2024, Sheppard Mullin Richter & Hampton LLP.
For more news on Recovering Trademark Infringement Attorney’s Fees, visit the NLR Intellectual Property section.

The FTC Has Banned Non-Competes: What Do Employers in the Energy Space Do Now?

When is the FTC’s rule effective?

The FTC’s non-compete ban is not in effect yet. It does not become effective until 120 days after the date of publication in the Federal Register of the final rule. The Federal Register is expected to publish the final rule next week, likely making the effective date around the beginning of September 2024.

Has litigation already been filed to challenge the non-compete ban?

The FTC’s non-compete ban is subject to at least two existing legal challenges seeking to have it invalidated. The U.S. Chamber of Commerce filed a Complaint for Declaratory Judgment and Injunctive Relief in U.S. District Court for the Eastern District of Texas, Tyler Division (Chamber of Commerce of the United States of America v. Federal Trade Commission, Case No. 6:24-cv-00148 (E.D. Tex. filed April 24, 2024); see also Ryan, LLC v. Federal Trade Commission, Case No. 3:24-cv-986 (N.D. Tex. filed April 23, 2024)). We don’t know whether these legal challenges will be successful, but we will provide updates when we know more.

What if the legal challenges are unsuccessful?

If the legal challenges are not successful and the rule goes into effect 120 days from next week (again, approximately early September 2024), here are steps that employers can take to get ready for the effective date:

  • Review existing agreements to determine if they are now “unfair methods of competition”:
    • One issue to analyze is whether an individual with a non-compete is a “worker” or a “senior executive.”
      • If a “senior executive,” then a non-compete in place that pre-exists that effective date can still be enforced.
      • If not a “senior executive,” then any non-compete clause that pre-dates the effective date for a worker is banned by the rule.
      • If an independent contractor (or another non-employee worker), any non-compete clause is banned.
    • Another issue to consider is whether non-solicitation, non-disclosure, or reimbursement provisions could be subject to the FTC ban. A provision that prevents a worker from seeking or accepting work in the U.S. with a different person or from operating a business in the U.S., then it is a “non-compete clause” that is subject to the rule. Depending on the wording and the factual circumstances, an obligation not to solicit customers could be considered a prohibited non-compete. For example, if an obligation not to solicit certain clients keeps a worker from accepting any job in the Permian Basin, it is arguable that the provision operates as a non-compete and violates the rule.
  • Determine whether notice is required: After reviewing which non-compete clauses are not in compliance with the FTC rule, prepare a notice for workers who are currently subject to a non-compete clause banned by the rule. The FTC put out model language on the notification, which informs the worker that the non-compete clause is no longer valid as of the effective date.
  • Update any form agreements: As part of the review of existing non-compete agreements, take the opportunity to update form agreements to remove now unenforceable non-compete (and possibly non-solicit) provisions. It is always a good idea to review and update the agreement generally to make sure that it reflects your current business and definition of confidential information.
  • Enter into non-compete agreements with “senior executives”:
    • The FTC ban permits non-compete agreements with “senior executives” that pre-exist the effective date to continue after the effective date. After the effective date, an employer may not require a senior executive to sign a new non-compete.
    • The term “senior executive” refers to officers earning more than $151,164 with “policy-making authority.” As so defined, the FTC estimates that senior executives represent less than 0.75% of all workers.
    • “Policy-making authority” means “final authority to make policy decisions that control significant aspects of a business entity or common enterprise and does not include authority limited to advising or exerting influence over such policy decisions or having final authority to make policy decisions for only a subsidiary of or affiliate of a common enterprise.”
    • Energy company officers of companies that are part of a common enterprise or joint venture will want to analyze whether senior executives have final authority that qualifies for a non-compete under the rule.
    • As always, any employer should make sure that a non-compete complies with existing state laws to assist in any enforcement efforts.
  • Take note of violations before the effective date: The FTC’s noncompete ban does not apply where a cause of action related to a noncompete clause accrued before the effective date. So, if a worker is violating a noncompete that would otherwise be banned under the FTC rule, an employer may want to consider whether to initiate legal action against that worker before the effective date to fall under this exception.
© 2024 Bradley Arant Boult Cummings LLP
For more on the FTC Noncompete Ban, visit the NLR Labor & Employment section.

Eleventh Circuit Affirms Dismissal of FCRA Claims Since Alleged Inaccurate Information Was Not Objectively and Readily Verifiable

In Holden v. Holiday Inn Club Vacations Inc., No. 22-11014, No. 22-11734, 2024 WL 1759143 (11th Cir. 2024), which was a consolidated appeal, the United States Court of Appeals for the Eleventh Circuit (“Eleventh Circuit” or “Court”) held that the purchasers of a timeshare did not have actionable FCRA claims since the alleged inaccurate information reported to one of the consumer reporting agencies (“CRAs”) was not objectively and readily verifiable. In doing so, the Eleventh Circuit affirmed two decisions issued by United States District Court for the Middle District of Florida (“District Court”) granting of summary judgment in favor of the timeshare company in the respective cases.

Summary of Facts and Background

Two consumers, Mark Mayer (“Mayer”) and Tanethia Holden (“Holden”), entered into two separate purchase agreements with Holiday Inn Club Vacations Incorporated (“Holiday”) to acquire timeshare interests in Cape Canaveral and Las Vegas, respectively. Holiday is a timeshare company that allows customers to purchase one or more of its vacation properties in weekly increments that can be used annually during the designated period. As part of the transaction, Holiday’s customers typically elect to finance their timeshare purchases through Holiday, which results in the execution of a promissory note and mortgage.

  1. Mayer’s Purchase, Default, and Dispute

On September 15, 2014, Mayer entered into his purchase agreement with Holiday, which contained a title and closing provision stating the transaction would not close until Mayer made the first three monthly payments, and Holiday recorded a deed in Mayer’s name. The purchase agreement also included a purchaser’s default provision stating that upon Mayer’s default or breach of any of the terms or conditions of the agreement, all sums paid by Mayer would be retained by Holiday as liquidated damages and the parties to the purchase agreement would be relieved from all obligations thereunder. Further, the purchase agreement provided that any payments made under a related promissory note prior to the closing would be subject to the purchaser’s default provision. On the same day, Mayer executed a promissory note to finance his timeshare purchase, which was for a term of 120 months. On July 13, 2015, Holiday recorded a deed in Mayer’s name, and he proceeded to tender timely monthly payments until May 2017. As a result of Mayer’s failure to tender subsequent payments, Holiday reported Mayer’s delinquency to the CRA.

Approximately two years later, Mayer obtained a copy of his credit report and discovered Holiday had reported a past-due balance. Thereafter, Mayer sent multiple letters to the CRA disputing the debt, as he believed the purchase agreement was terminated under the purchaser’s default provision. Each dispute was communicated to Holiday, who in turn certified that the information was accurately reported. Mayer sued Holiday for an alleged violation of 15 U.S.C. § 1681s-2(b) of the FCRA based on the furnishing of inaccurate information and failure to “fully and properly re-investigate” the disputes. Holiday eventually moved for partial summary judgment, which the District Court granted. The District Court reasoned that the underlying issue of whether the default provision excused Mayer’s obligation to keep paying was a legal dispute rather than a factual inaccuracy and, in turn, made Mayer’s claim not actionable under the FCRA. Mayer timely appealed to the Eleventh Circuit.

  1. Holden’s Purchase, Default, and Dispute

On June 25, 2016, Holden entered into her purchase agreement with Holiday, which contained a nearly identical title and closing provision to that of Mayer’s purchase agreement. Additionally, Holden’s purchase agreement incorporated a similar purchaser’s default provision. Similarly, Holden executed a promissory note to finance her timeshare purchase, which was for a term of 120 months, and entered into a mortgage to secure the payments under the note. After making her third payment, Holden defaulted and hired an attorney to cancel the purchase agreement pursuant to the closing and title provision and purchaser’s default provision. However, Holiday disputed the purchase agreement was canceled and, on June 19, 2017, recorded a timeshare deed in Holden’s name. More importantly, Holiday reported Holden’s delinquent debt to the CRA.

In response, Holden’s attorney sent three dispute letters to Holiday, which resulted in Holiday investigating the dispute and determining the reporting was accurate since Holden was still obligated under the note. Eventually, Holden sued Holiday for various violations of Florida State law and the FCRA. Holden claimed Holiday reported inaccurate information to the CRA, failed to conduct an appropriate investigation, and failed to correct the inaccuracies. The parties filed competing motions for partial summary judgment, which ended with the District Court granting Holiday’s motion and denying Holden’s motion. Specifically, the District Court held that Holden’s FCRA claim failed because contract disputes regarding whether Holden still owed the underlying debt are legal disputes and not factual inaccuracies. Holden timely appealed to the Eleventh Circuit.

The Fair Credit Reporting Act

As the Eleventh Circuit reiterated in Holden, when a furnisher is notified of a consumer’s dispute, the furnisher must undertake the following three actions: (1) conduct an investigation surrounding the disputed information; (2) review all relevant information provided by the CRA; and (3) report the results of the investigation to the CRA. When a furnisher determines an item of information disputed by a consumer is incomplete, inaccurate, or cannot be verified, the furnisher is required to modify, delete, or permanently block reporting of the disputed information. See 15 U.S.C. § 1681s-2(b)(1)(E). Additionally, any disputed information that a furnisher determines is inaccurate or incomplete must be reported to all other CRAs. See 15 U.S.C. § 1681s-2(b)(1)(D). Despite the foregoing, consumers have no private right of action against furnishers merely for reporting inaccurate information to the CRAs. The only private right of action a consumer may assert against a furnisher is for a violation of 15 U.S.C. § 1681s-2(b) for failure to conduct a reasonable investigation upon receiving notice of a dispute from a CRA. See 15 U.S.C. § 1681s-2(c)(1)).

To successfully prove an FCRA claim, the consumer must demonstrate the following: (1) the consumer identified inaccurate or incomplete information that the furnisher provided to the CRA; and (2) the ensuing investigation was unreasonable based on some facts the furnisher could have uncovered that establish the reported information was inaccurate or incomplete.

The Eleventh Circuit’s Decision

In affirming the District Court’s decisions granting summary judgment and dismissing the FCRA claims, the Eleventh Circuit clarified that whether the alleged inaccuracy was factual or legal was “beside the point. Instead, what matters is whether the alleged inaccuracy was objectively and readily verifiable.” Specifically, the Eleventh Circuit cited to Erickson v. First Advantage Background Servs. Corp., 981 F. 3d 1246, 1251-52 (11th Cir. 2020), which defined “accuracy” as “freedom from mistake or error.” The Eleventh Circuit continued by reiterating that “when evaluating whether a report is accurate under the [FCRA], we look to the objectively reasonable interpretations of the report.” As such, “a report must be factually incorrect, objectively likely to mislead its intended user, or both to violate the maximal accuracy standards of the [FCRA].”

Based on this standard, the Eleventh Circuit held that the alleged inaccurate information on which Mayer and Holden based their FCRA claims was not objectively and readily verifiable since the information stemmed from contractual disputes without simple answers. As such, the Eleventh Circuit found that Holiday took appropriate action upon receiving Mayer and Holden’s disputes by assessing the issues and determining whether the respective debts were due and/or collectible, which thereby satisfied its obligation under the FCRA. While Mayer and Holden argued to the contrary, the Eleventh Circuit held that the resolutions of these contract disputes were not straightforward applications of the law to facts. In support of its decision, the Eleventh Circuit cited to the fact that Florida State courts have reviewed similar timeshare purchase agreements and reached conflicting conclusions about whether the default provisions excused a consumer’s obligation to pay the underlying debt.

Conclusion

Holden is a limited victory for furnishers, as the Eleventh Circuit declined to impose a bright-line rule that only purely factual or transcription errors are actionable under the FCRA and held a court must determine whether the alleged inaccurate information is “objectively and readily verifiable.” Accordingly, there are situations when furnishers are required by the FCRA to accurately report information derived from the readily verifiable and straightforward application of the law to facts. One example of such a situation is misreporting the clear effect of a bankruptcy discharge order on certain types of debt. Thus, furnishers should revisit their investigation and verification procedures so they do not run afoul of the FCRA. Furnishers should also continue to monitor for developing case law as other circuit courts confront these issues.

© 2024 Blank Rome LLP
For more news on Fair Credit Reporting Act Litigation, visit the NLR Litigation / Trial Practice section.

A New Day for “Natural” Claims?

On May 2, the Second Circuit upheld summary judgment in favor of KIND in a nine year old lawsuit challenging “All Natural” claims. In Re KIND LLC, No. 22-2684-cv (2d Cir. May 2, 2024). Although only time will tell, this Circuit decision, in favor of the defense, may finally change plaintiffs’ appetite for “natural” cases.

Over the many years of litigation, the lawsuit consolidated several class action filings from New York, Florida, and California into a single, multi-district litigation with several, different lead plaintiffs. All plaintiffs alleged that “All Natural” claims for 39 KIND granola bars and other snacks were deceptive. Id. at 3. Plaintiff had alleged that the following ingredients rendered the KIND bars not natural: soy lecithin, soy protein isolate, citrus pectin, glucose syrup/”non-GMO” glucose, vegetable glycerine, palm kernel oil, canola oil, ascorbic acid, vitamin A acetate, d-alpha tocopheryl acetate/vitamin E, and annatto.

The Second Circuit found that, in such cases, the relevant state laws followed a “reasonable consumer standard” of deception. Id. at 10. Further, according to the Second Circuit, the “Ninth Circuit has helpfully explained” that the reasonable consumer standard requires “‘more than a mere possibility that the label might conceivably be misunderstood by some few consumers viewing it in an unreasonable manner.’” Id. (quoting McGinity v. Procter & Gamble Co., 69 F.4th 1093, 1097 (9th Cir. 2023)). Rather, there must be “‘a probability that a significant portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled.’” Id. To defeat summary judgement, the plaintiffs would need to present admissible evidence showing how “All Natural” tends to mislead under this standard.

The Second Circuit agreed with the lower court that plaintiffs’ deposition testimony failed to provide such evidence where it failed to “establish an objective definition” representing reasonable consumer understanding of “All Natural.” Id. at 28. While one plaintiff believed the claim meant “not synthetic,” another thought it meant “made from whole grains, nuts, and fruit,” while yet another believed it meant “literally plucked from the ground.” Id. The court observed that plaintiffs “fail[ed] to explain how a trier of fact could apply these shifting definitions.” Id. The court next rejected as useful evidence a dictionary definition of “natural,” which stated, “existing or caused by nature; not made or caused by humankind.” Id. at 29. The court reasoned that the dictionary definition was “not useful when applied to a mass-produced snack bar wrapped in plastic” – something “clearly made by humans.” Id.

The court, finally, upheld the lower court’s decision to exclude two other pieces of evidence the plaintiffs offered. First, the Second Circuit agreed that a consumer survey was subject to exclusion where leading questions biased the results. Id. at 21-22. The Second Circuit also agreed that an expert report by a chemist lacked relevance where it assessed “typical” sourcing of ingredients, not necessarily how KIND’s ingredients were manufactured or sourced. Id. at 22-24.

© 2024 Keller and Heckman LLP
by: Food and Drug Law at Keller and Heckman of Keller and Heckman LLP

For more news on Food Advertising Litigation, visit the NLR Biotech, Food, Drug section.

Bidding Farewell, For Now: Google’s Ad Auction Class Certification Victory

A federal judge in the Northern District of California delivered a blow to a potential class action lawsuit against Google over its ad auction practices. The lawsuit, which allegedly involved tens of millions of Google account holders, claimed Google’s practices in its real-time bidding (RTB) auctions violated users’ privacy rights. But U.S. District Judge Yvonne Gonzalez Rogers declined to certify the class of consumers, pointing to deficiencies in the plaintiffs’ proposed class definition.

According to plaintiffs, Google’s RTB auctions share highly specific personal information about individuals with auction participants, including device identifiers, location data, IP addresses, and unique demographic and biometric data, including age and gender. This, the plaintiffs argued, directly contradicted Google’s promises to protect users’ data. The plaintiffs therefore proposed a class definition that included all Google account holders subject to the company’s U.S. terms of service whose personal information was allegedly sold or shared by Google in its ad auctions after June 28, 2016.

But Google challenged this definition on the basis that it “embed[ded] the concept of personal information” and therefore subsumed a dispositive issue on the merits, i.e., whether Google actually shared account holders’ personal information. Google argued that the definition amounted to a fail-safe class since it would include even uninjured members. The Court agreed. As noted by Judge Gonzalez Rogers, Plaintiffs’ broad class definition included a significant number of potentially uninjured class members, thus warranting the denial of their certification motion.

Google further argued that merely striking the reference to “personal information,” as proposed by plaintiffs, would not fix this problem. While the Court acknowledged this point, it concluded that it did not yet have enough information to make that determination. Because the Court denied plaintiffs’ certification motion with leave to amend, it encouraged the parties to address these concerns in any subsequent rounds of briefing.

In addition, Judge Gonzalez raised that plaintiffs would need to demonstrate that the RTB data produced in the matter thus far was representative of the class as a whole. While the Court agreed with plaintiffs’ argument and supporting evidence that Google “share[d] so much information about named plaintiffs that its RTB data constitute[d] ‘personal information,” Judge Gonzalez was not persuaded by their assertion that the collected RTB data would necessarily also provide common evidence for the rest of the class. The Court thus determined that plaintiffs needed to affirmatively demonstrate through additional evidence that the RTB data was representative of all putative class members, and noted for Google that it could not refuse to provide such and assert that plaintiffs had not met their burden as a result.

This decision underscores the growing complexity of litigating privacy issues in the digital age, and previews new challenges plaintiffs may face in demonstrating commonality and typicality among a proposed class in privacy litigation. The decision is also instructive for modern companies that amass various kinds of data insofar as it demonstrates that seemingly harmless pieces of that data may, in the aggregate, still be traceable to specific persons and thus qualify as personally identifying information mandating compliance with the patchwork of privacy laws throughout the U.S.

© 2024 Proskauer Rose LLP.
For more news on Google Ad Litigation, visit the NLR Litigation / Trial Practice section.

A Paradigm Shift in Legal Practice: Enhancing Civil Litigation with Artificial Intelligence

A paradigm shift in legal practice is occurring now. The integration of artificial intelligence (AI) has emerged as a transformative force, particularly in civil litigation. No longer is AI the stuff of science fiction – it’s a real tangible power that is reshaping the manner in which the world functions and, along with it, the manner in which the lawyer practices. From complex document review processes to predicting case outcomes, AI technologies are revolutionizing the way legal professions approach and navigate litigation and redefining traditional legal practice.

Streamlining Document Discovery and Review

One of the most time-consuming tasks in civil litigation is discovery document analysis and review. Traditionally, legal teams spend countless hours sifting through documents to identify relevant evidence, often reviewing the same material multiple times, depending on the task at hand. However, AI-powered document review platforms can now significantly expedite this process. By leveraging natural language processing (NLP) and machine learning algorithms, there platforms can quickly analyze and categorize documents based on relevance, reducing the time and resources required for document review while ensuring thoroughness and accuracy. AI in the civil discovery process offers a multitude of benefits for the practitioner and cost saving advantages for the client, such as:

• Efficiency: AI powered document review significantly reduces required discovery, allowing legal teams to focus their efforts on higher value tasks and strategic analysis;

• Accuracy: By automating the initial document review process AI helps minimize potential human error and ensures a greater consistency and accuracy in identifying relevant documents and evidence;

• Cost-effectiveness: AI driven platforms offer a cost-effective alternative to traditional manual review methods, helping to lower overall litigation costs for clients

• Scalability: AI technology can easily scale to handle large volumes of data making it ideal for complex litigation cases with extensive document discovery requirements;

• Insight Generation: AI algorithms can uncover hidden patterns, trends, and relationships within the closed data bases that might not be apparent through manual review, providing valuable strategy and decision-making.

Predictive Analytics for Case Strategy

Predicting case outcomes is inherently challenging, often relying on legal expertise, jurisdictional experience of the lawyer and analysis of the claimed damage. However, AI-driven predictive analytics tools are changing the game by providing hyper-accurate data-driven insights into case strategies. By analyzing past case law, court rulings, and other relevant data points, these tools can forecast-model the likely outcome of a given case, allowing legal teams and clients to make more informed decisions regarding jurisdictionally specific settlement negotiations, trial strategy and resource allocation.

Enhanced Legal Research and Due Diligence

AI-powered legal research tools have become powerful tools for legal professionals involved in civil litigation. These tools utilize advanced algorithms to sift through vast repositories in a closed system of case law, statutes, regulations and legal precedent, delivering relevant information in a fraction of the time it would take through manual research methods. Additionally, AI can assist in due diligence processes by automatically flagging potential legal risks and identifying critical issues within contracts and other legal documents.

Improving case Management and Workflow Efficiency

Managing multiple cases simultaneously can be daunting for legal practitioners and could lead to inefficiencies and oversight. AI-driven case management systems offer a solution by providing centralized case-related information, deadlines and communications. These systems can automate routine tasks, such as scheduling document filing and client communication schedules, freeing up valuable time for attorneys to focus on legal substantive tasks and proactive case movement .

Ethical Considerations and Challenges

While the benefits of AI in civil litigation are undeniable, they also raise important ethical considerations and challenges. Issues such as data privacy, algorithmic bias, and the ethical use of AI in decision-making processes must be carefully addressed to ensure fairness and transparency in the legal system. Additionally, there is a growing need for ongoing education and training to equip legal professionals with the necessary skills to effectively leverage AI tools while maintain ethical standards and preserving the integrity of the legal profession.

Take Away

The integration of AI technologies in civil litigation represents a paradigm shift in legal practice, offering unprecedented opportunities to streamline processes, enhance decision-making and improve client satisfaction. By harnessing the power of AI-driven solutions, legal professionals can navigate complex civil disputes more efficiently and effectively, ultimately delivering better outcomes for clients and advancing the pursuit of just outcomes in our rapidly evolving legal landscape.

© 2024 McGivney, Kluger, Clark & Intoccia. ALL RIGHTS RESERVED.
For more news on Enhancing Civil Litigation with Artificial Intelligence, visit the NLR Litigation / Trial Practice section.