Articles from May 2013

Responding to allegations that Henry’s Turkey (an Iowa-based subsidiary of Hill County Farms) subjected a class of intellectually disabled workers to verbal abuse and deprivation of rights, the United States Equal Employment Opportunity Commission (EEOC) brought suit for discrimination against the turkey processor in 2011 (read the complaint here). The EEOC lawsuit was brought under the Americans with Disabilities Act (ADA), which prohibits discrimination against disabled employees in wages and workplace conditions, and bars disability-based harassment.

This case has now yielded a $240 million jury verdict, the largest in EEOC’s history according to the agency. The jury found that Henry’s Turkey had subjected the 32 plaintiffs to severe abuse and discrimination, and awarded the former employees, who earned a meager $65 per month working at Henry’s, $5.5 million each in compensatory damages and $2 million each in punitive damages.

The abuse was shocking in its cruelty. During the trial, the EEOC offered evidence that the employer (including owners and supervisors) directed verbal abuse at the workers, regularly referring to them as “retarded,” “dumb ass” and “stupid.” The company also failed to provide workers with the medical care that was needed in the course of the high-risk work and paid them well under the minimum wage. In the face of such serious allegations, Hill County Farms nonetheless opted to take the case to trial, refusing to settle through the ADA’s mandatory conciliation process.

The significance of this historic jury award is eloquently summed up by an EEOC press release: “The verdict sends an important message that the conduct that occurred here is intolerable in this nation, and hopefully will help to restore dignity and acknowledge the humanity of the workers who were mistreated for so many years.”

The Federal National Mortgage Association, better known as Fannie Mae, and Big Four accounting firm KPMG have agreed to pay $153 million to settle a securities class action that has been litigated over the past eight years. The class members are Fannie Mae shareholders, chiefly large institutional investors and pension plans. The complaint alleges that Fannie Mae, in concert with its auditor, KMPG, violated established accounting principles and published misleading financial reports, which caused Fannie Mae’s stock price to be artificially inflated. The settlement (available here) now awaits a preliminary approval ruling from U.S. District Judge Richard Leon.

No word on why Fannie Mae and other lenders have opted for cheerful nicknames rather than simple, staid acronyms.

Donald Cullen, a deaf college student, filed suit against Netflix over alleged violations of the Americans with Disabilities Act (ADA) and California’s Disabled Persons and Unruh Civil Rights Acts, claiming that Netflix failed to provide adequate closed captioning and made misleading statements about the availability of closed captioning in Netflix’s streaming movies and TV shows. While Cullen’s suit was pending, the National Association of the Deaf (NAD) filed and settled a similar action against Netflix, which resulted in a consent decree requiring that Netflix provide closed captioning in all streaming video by September of 2014. As a result, Cullen opted to dismiss his ADA claims.

Although Cullen’s suit did not directly generate the settlement resulting in the consent decree, it was likely among the constellation of forces — a “catalyst” under pertinent doctrine — that compelled Netflix to agree to precisely the relief that Cullen sought in his earlier-filed case. As such, Cullen’s attorneys sought fees of $250,000 based on that theory, noting that Cullen effectively prevailed in his litigation aims (insofar as his claims were virtually identical to those in the NAD lawsuit) and that in the course of litigating the case, Cullen and his counsel contributed to negotiations and decisions that ultimately led to the settlement with the NAD. However, Netflix’s counsel, San Francisco-based Morrison & Forster, not only opposed the attempt by Cullen’s counsel to recover fees, but argued that Netflix should be awarded $165,000 to pay Morrison & Forster for efforts spent defending against Cullen’s suit.

On May 1st, U.S. District Court Judge Edward J. Davila issued a decision denying both fee motions. Cullen v. Netflix, No. 11-1199 (N.D. Cal. May 1, 2013) (order denying plaintiff’s and defendant’s motions for attorneys’ fees, available here). Judge Davila held that Cullen had not successfully argued for application of the catalyst theory, finding that he failed to establish the requisite causal connection between his suit and the NAD-negotiated consent decree. Order at 4-5. In rejecting the Netflix fee motion, Judge Davila found that Netflix fell well short of establishing the criteria for a prevailing party entitled to fees, and hinted that the Cullen fee decision was a close call, since Cullen filed his claims “not only to rectify an alleged harm on his own behalf, but also to serve a greater purpose in the form of establishing certain civil rights standards and thresholds on behalf of a class of disabled individuals.” Order at 7.

Ultimately, that greater purpose will be served by the consent decree that will eventually provide for full closed captioning of Netflix streaming videos. Whether Cullen’s fee motion might have been granted in the absence of Netflix having filed its own fee motion cannot be known.

The Sixth Circuit has issued a counterweight to the recent spate of anti-class-action decisions coming from federal courts. In In re: Vertrue Inc., a three-judge panel held that the statute of limitations for the claims of putative class members may be tolled in a subsequent class action when there was no ruling on class certification in a prior class action. See In re: Vertrue Inc. Marketing and Sales Practices Litig., No. 10-3928 (6th Cir. Apr. 16, 2013) (slip opinion available here).

This case and numerous related cases had a long, meandering decade-plus procedural history before arriving in the Sixth Circuit, which has appellate jurisdiction over federal trial-level courts in Kentucky, Michigan, Ohio, and Tennessee. The plaintiff first filed the action in the Southern District of California in 2002, seeking to represent a national class who bought membership programs purporting to provide discounts on purchases, but that in fact functioned to lure consumers with “bait” products. Slip op. at 2-4. The plaintiff alleged that when customers called the company to buy the bait product, they were deceived into believing that free materials would be sent to them in the mail. Id. Vertrue would then mail a membership card and place a recurring annual charge of $60-$170 on the customer’s credit card, which would only be removed if the customer navigated hard-to-follow procedures for cancellation. Id.

The California district court dismissed the action without having ruled on class certification. Slip op. at 3-4. In response, plaintiffs filed 13 state court actions across multiple jurisdictions, which were consolidated in the Northern District of Ohio. Slip op. at 4-5. The Ohio federal court held that the claims were tolled as a result of the Southern District of California proceeding and that the state court claims therefore were timely filed, which occasioned the appeal to the Sixth Circuit. Slip op. at 5. The Sixth Circuit affirmed the tolling, relying on Supreme Court authority allowing for unnamed plaintiffs to preserve their individual claims while class action lawsuits are pending. The court explained that refusing to recognize the claims of unnamed class members would lead to inefficiency because the class members would then be forced to file individual actions to preserve any state law claims whose statutes of limitations might otherwise expire while a federal class action is pending. See slip op. at 11-12.

The unanimous three-judge panel affirmed the district court’s holding that both the plaintiffs’ federal and state law claims were timely asserted, and that the plaintiffs’ claims were tolled under American Pipe & Constr. Co. v. Utah, 414 U.S. 538, (1974). Circuit Judge Julia Smith Gibbons reasoned that “Vertrue has failed to explain how the efficiencies sought by American Pipe tolling would be advanced if putative class members were forced to file individual state law actions to preserve any state law claims whose statutes of limitations might run during the course of class proceedings.” Slip op. at 11.

In sensibly preserving the rights of consumers whose claims have never been adjudicated or denied class certification, the decision marks a clear victory for consumers, and, in contrast to some recent decisions affecting class actions, one grounded in Supreme Court precedent.