Articles from February 2014

Earlier this month, in an unpublished opinion, the U.S. Court of Appeal for the Ninth Circuit ruled that a wage and hour class action, brought on behalf of financial advisors against Chase Investment Services Corp., would not be compelled to arbitration because the parties’ agreement calls for arbitration under Financial Industry Regulatory Authority (“FINRA”) rules, which exclude class claims from arbitration. Alakozai v. Chase Inv. Servs. Corp., No. 12-55553 (9th Cir. Feb. 7, 2014) (slip opinion available here).

The ruling affirmed the district court’s denial of Chase’s motion to compel arbitration, holding that “the plain language of the arbitration agreement incorporates the FINRA rules and requires arbitration of individual claims, but excludes class claims from arbitration.” Slip op. at 2. FINRA Rule 13204 provides that a FINRA member may not enforce an arbitration agreement against a member of a certified or putative class action until: class certification is denied; the class is decertified; the class member is excluded from the class by the court; or the class member elects not to participate in or withdraws from the class. The Ninth Circuit concluded that Rule 13204 precludes enforcement of Chase’s arbitration agreement because the district court had not yet addressed class certification in this case.

Similarly, last September, the Southern District court of New York denied JP Morgan Chase & Co.’s motion to compel arbitration as to four plaintiffs who had signed an employment agreement containing an arbitration provision incorporating the FINRA rules, and granted conditional certification to a class of financial advisors.  See Memorandum Order, Lloyd et al. v. JP Morgan Chase & Co. et al. and Ciullo v. JP Morgan Chase & Co. et al., Nos. 11-9305 and 12-2197 (S.D.N.Y. Sept. 9, 2013) (available here). The plaintiffs in the Lloyd and Ciullo cases alleged that JPMorgan Chase & Co. misclassified them as exempt workers and thus had denied them overtime wages. The court refused to dismiss the four plaintiffs’ claims (although it dismissed the claims of five other plaintiffs who had signed a different arbitration agreement which contained a class waiver and did not incorporate the FINRA rules), citing the district court’s decision in Alakozai. “Because the FINRA rules [13204(a) and 13204(b)], as currently in effect, clearly do not require, and indeed preclude at this juncture, arbitration of the class and collective action claims raised in this litigation, defendants’ motion to compel arbitration of the claims of [the four plaintiffs] must be denied.” Memorandum Order at 14.

Last month, the U.S. Court of Appeal for the Seventh Circuit held that an offer of judgment does not moot a plaintiff’s individual or class claims, where the amount needed to satisfy the plaintiff’s claims is disputed. Scott v. Westlake Services LLC, No. 13-2699 (7th Cir. Jan. 23, 2014) (slip opinion available here). The holding expands upon previous decisions in which the court held that, while an unaccepted settlement offer for all the relief requested by a plaintiff renders the case moot (see Damasco v. Clearwire Corp., 662 F.3d 891 (7th Cir. 2011)), if the defendant offers to pay only what it thinks is owed, a plaintiff’s case is not mooted. Gates v. Towery, 430 F.3d 429, 431–32 (7th Cir. 2005). Only if no additional relief is possible is the plaintiff’s claim mooted. Id.

In Scott, the plaintiff filed a class action alleging that the defendant had called her using an automated dialer, in violation of the Telephone Consumer Protection Act, 47 U.S.C. § 227. Before the plaintiff moved to certify the class, the defendant offered to settle and pay the plaintiff $1,500 for “each and every dialer-generated telephone call made to plaintiff.” Slip op. at 2. The offer noted that the parties did not agree on the number of “dialer-generated” calls, but suggested that they meet to further discuss the issue of the number of calls. The plaintiff refused the offer and moved for class certification, but the lower court dismissed the case, finding that the offer had rendered the plaintiff’s case moot.

The Seventh Circuit reversed and remanded, holding that the offer failed to satisfy the plaintiff’s entire demand because the defendant had only offered to pay for some, but not all, of the calls that the plaintiff had alleged occurred. The court reasoned that the defendant’s mootness argument was inconsistent with the fact that the district court had ordered post-judgment discovery concerning the number of qualifying calls the plaintiff received. This discovery would determine the plaintiff’s damages, a disputed issue on the merits. As noted by the Scott court, the circuit courts are currently split on whether an unaccepted settlement offer can render a plaintiff’s case moot; the Supreme Court granted certiorari to resolve this split in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), but eventually decided that case on narrower grounds. Slip op. at 4, fn 1.

Early last week, the Ninth Circuit ruled that a plaintiff need not show actual injury to have standing in a case brought under the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. (“FCRA”). Robins v. Spokeo, Inc., No. 11-56843 (9th Cir. Feb. 4, 2014) (slip opinion available here). Spokeo is a “people search engine” which aggregates information from public sources such as social media accounts, telephone directories, and real estate listings. Plaintiff had filed a class action suit against Spokeo, alleging willful violations of the FCRA.

The district court had previously dismissed the case on the basis of Article III standing. However, on appeal, the Ninth Circuit panel found that the FCRA statute does not require actual harm for willful violations. The court said: “The scope of the cause of action determines the scope of the implied statutory right. When, as here, the statutory cause of action does not require proof of actual damages, a plaintiff can suffer a violation of the statutory right without suffering actual damages.” Slip op. at 8 (emphasis added, internal citations omitted). Thus, the mere allegation that Plaintiff’s statutory rights were violated, supported by a private cause of action conferred by the FCRA statute, was enough to satisfy standing requirements. The opinion also noted that Plaintiff had sufficiently pled causation and redressability, which are also requirements for standing.

Although the Spokeo ruling may be restricted to FCRA claims, its reasoning that violations of a statutory right are sufficient to confer standing has obvious implications for other statutes. It also indicates a favorable trend by courts to allow privacy class actions to proceed without requiring a plaintiff to have suffered “actual harm.”

In a unanimous decision authored by Justice Scalia, the Supreme Court held that the time spent by U.S. Steel employees “donning and doffing” protective gear was not compensable because they were “changing clothes” under Section 203(o) of the Fair Labor Standards Act (“FLSA”). Sandifer v. United States Steel Corp., 571 U.S. __ (2014) (slip opinion available here). The Court affirmed a Seventh Circuit decision which held that FLSA Section 203(o) allowed U.S. Steel to withhold pay for the time spent changing clothes under a collective-bargaining agreement with the United Steelworkers. See 678 F.3d 590 (7th Cir. 2012).

Donning-and-doffing time is typically compensable under the FLSA; however, Section 203(o) allows parties to bargain collectively over whether “time spent in changing clothes or washing at the beginning or end of each workday” must be compensated. The employees argued that the definition of “clothes” under Section 203(o) excludes any items designed and used to protect against workplace hazards, while the company argued that the definition includes anything worn on the body. In keeping with Justice Scalia’s originalist approach to statutory construction, the high court rejected both parties’ definitions and instead drew upon dictionaries from the era of Section 203(o)’s enactment, defining the term “clothes” as: “items that are both designed and used to cover the body and are commonly regarded as articles of dress.” Slip op. at 6. Drawing upon the same contemporaneous sources, the Court defined the term “changing clothes” to mean to “substitute” or “alter” one’s dress. Id. at 10.

Applying these definitions, the Court found that the employees’ donning and doffing of certain protective gear fell within the scope of Section 203(o). The Court found that nine items of protective gear at issue fell within the definition of “clothes” and that three items (workers’ glasses, earplugs, and respirators) did not. However, because the “vast majority” of the disputed time was spent donning and doffing the nine items that qualified as “clothes,” the Court ruled that the time workers spent donning and doffing the other three items need not be compensated. Slip op. at 14-15. The opinion instructs lower courts to consider “on the whole” the time spent by workers putting on and taking off clothes versus non-clothes items to determine whether or not that time is non-compensable under Section 203(o). Id. at 14.