Articles from January 2014

Elite Model Management Settles Unpaid Intern Claims

U.S. District Judge Alison J. Nathan granted preliminary approval to a $450,000 settlement reached between Elite Model Management and former interns for alleged violations of New York and federal wage and hour laws. The plaintiffs alleged they were purposefully misclassified as “interns” when they were, in fact, performing the work of regular employees, except without pay. See Order Granting Plaintiffs’ Motion for Preliminary Approval of Class Action Settlement, Davenport v. Elite Model Management Corp., No. 13-01061 (S.D.N.Y. Jan. 9, 2014) (available here).

The lawsuit alleged that Elite Model Management used its internship program as a way to obtain free labor that it would otherwise have had to hire and pay workers to perform. The Fair Labor Standards Act permits unpaid internship programs, but only if the internship meets strict criteria for the interns to be classified as trainees. For such a program to pass muster, the employer must derive no immediate advantage from the activities of the intern, the intern must be the primary beneficiary of the internship, and the interns must not displace regular employees.

Former interns who opt into the Davenport settlement will receive approximately $175 for each week they interned at the modeling agency, with a minimum of $700 for four-week internships, and up to $1,750 each. The settlement is considered to be the largest unpaid internship settlement to date. It follows a slew of recent unpaid intern cases filed in New York state and federal courts which typically involve entertainment and media companies, such as Gawker, Charlie Rose, Condé Nast, and Fox Searchlight. The Davenport settlement is set for a final approval hearing on May 1, 2014.

U.S. Supreme Court Rules Parens Patriae Actions by State AGs Not Removable Under CAFA

Last week, the Supreme Court unanimously ruled that a parens patriae suit brought solely by a state on behalf of its injured citizens is not considered a “mass action” and therefore cannot be removed to federal court under the Class Action Fairness Act of 2005 (“CAFA”). Mississippi ex rel. Hood, Attorney General v. AU Optronics Corp., et al., 571 U.S. __ (2014) (slip opinion available here).

CAFA defines “mass action” as a civil action “in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiff’s claims involve common questions of law or fact.” 28 U.S.C. § 1332(d)(11)(B)(i). Such actions can be removed by defendants from state to federal court. In Hood, a suit brought under state antitrust statutes, the Mississippi Attorney General sued several liquid crystal display makers, including AU Optronics Corp. and LG Display Co., in state court. Defendants removed the case under CAFA, arguing that the lawsuit qualified as a “mass action” because it represented the interests of more than 100 state citizens. The district court held that the suit was a “mass action” under CAFA, but remanded based on CAFA’s “general public” exception. The Fifth Circuit agreed that the suit was a “mass action” because, even though there was but a single named plaintiff, the nonparty consumers on whose behalf the suit was brought were the “real parties in interest” thus satisfying the mass action provision’s numerosity requirement. However, the Fifth Circuit disagreed with the district court that the “general public” exception applied and reversed, concluding that federal jurisdiction under CAFA existed.

The Supreme Court granted certiorari to resolve the circuit split (the Fifth Circuit’s decision had departed from the other circuits’ which have considered the issue). The Court reversed, holding that the mass action provision’s numerosity requirement—which refers to “100 or more persons”—refers only to named plaintiffs. Thus, the Court held that, regardless of how many unnamed individuals potentially stand to benefit from the suit, only named plaintiffs may be counted to establish jurisdiction under CAFA’s mass action provision. Following this ruling, some analysts predict an increase in parens patriae cases being filed by attorneys general in partnership with private plaintiffs firms, with such suits being litigated in state court. Also, the Hood ruling may allow plaintiffs a way to dodge recent SCOTUS decisions allowing companies to enforce contractual class action waivers and arbitration agreements (such as American Express v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013)), because those rulings to not apply to state attorneys general.

Reardon v. ClosetMaid: Small Mistakes Can Lead to Big Liability for Employers

In an opinion issued last month, the U.S. District Court for the Western District of Pennsylvania held that failing to strictly adhere to disclosure requirements under the Fair Credit Reporting Act (“FCRA”) can turn a seemingly minor drafting issue into some major liability for employers. In Reardon v. ClosetMaid Corporation, No. 2:08-CV-01730 (W.D. Pa. Dec. 2, 2013) (available here), employer-defendant ClosetMaid had a practice of routinely requesting consumer credit reports of potential employees. Under such circumstances, FCRA requires a potential employer to give an applicant a FCRA disclosure and obtain his or her authorization to pull the report. Under Section 1681b(b)(2)(A)(i) of the FCRA, the disclosure must be a standalone document, but it may also include the authorization.

ClosetMaid presented applicants with a combined FCRA disclosure/authorization form which also contained a liability waiver. Unfortunately for ClosetMaid, the court held that the presence of the waiver rendered the entire document noncompliant under the FCRA. The court also found that the inclusion of the waiver was willful, making the company liable for hefty statutory damages — the estimated 1,800 class members could each receive the greater of his or her actual damages or $1,000 plus attorneys’ fees.