Posts belonging to Category Settlements

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.

Ninth Circuit Follows Kagan’s Genesis Healthcare Dissent

In her stinging dissent in Genesis Healthcare Corp. v. Symczyk, Justice Kagan stressed that the majority opinion, which held that an FLSA collective action can be terminated if the class representative is “picked off” by a settlement offer that fully resolves her claims, should not be used as precedent for future cases: “Feel free to relegate the majority’s decision to the furthest reaches of your mind: The situation it addresses should never again arise.” Justice Kagan specifically referred to the case’s odd posture, wherein neither party contested the premise that an unaccepted Rule 68 settlement offer serves to moot the plaintiff’s individual action, a premise the dissenting justices found to be incorrect.

In Diaz v. First American Home Buyers Protec. Corp., No. 11-57239 (9th Cir. Oct. 4, 2013) (slip opinion available here), the Ninth Circuit considered whether an unaccepted Rule 68 offer would moot a Rule 23 class action prior to a ruling on class certification. Noting a circuit split on this issue, Diaz examined Justice Kagan’s reasoning in Genesis and found it to be the “correct approach,” concluding that “an unaccepted Rule 68 offer that would have fully satisfied a plaintiff’s claim does not render that claim moot.” Slip op. at 14. The Diaz court thus vacated the district court order dismissing the putative class action.

While Diaz distinguished Genesis on the ground that Justice Kagan identified, other courts have distinguished Genesis as being wholly inapplicable to Rule 23 class actions. See, e.g., Craftwood II, Inc. v. Tomy Int’l, Inc., No. 12–1710 (C.D. Cal. July 15, 2013) (“[Genesis] does not cover class actions, nor does it even address how a rejected offer could moot a claim.”); Chen v. Allstate Ins. Co., No. 13-0685 (N.D. Cal. June 10, 2013) (holding that Genesis has no application to Rule 23 class actions); see also, Kensington Physical Therapy, Inc. v. Jackson Therapy Partners, LLC, No. 11-02467 (D. Md. Oct. 2, 2013) (same). These cases indicate that Justice Kagan’s dissent has already proven to be quite influential in limiting Genesis’ impact. However, considering that Diaz has exacerbated an unresolved circuit split (by siding with the Second Circuit against the Sixth and Seventh Circuits), it will shock no one if the Supreme Court takes up this issue again in the near future.

Book Publisher Penguin Agrees to $75 Million Ebook Pricing Settlement

Ebook publishers continue to pay a steep price in settling actions alleging that prices were elevated well above what a truly competitive market would have determined. With ebook prices of as much as $12 or $15 – far above the marginal cost plus modest profit that standard economic theory predicts of competitive markets – three publishers have already agreed to substantial settlements: Hachette, $31.7 million; HarperCollins, $19.5 million, and Simon & Schuster, $17.7 million.

Now, Penguin has agreed to the largest such settlement, more than twice that of the Hachette settlement: $75 million to resolve claims brought by state attorneys general, after having earlier settled with the U.S. Department of Justice. Specifically, the settlement provides that Penguin will refund $75 million to consumers through credits to buy Penguin books through online retailers. Penguin’s parent company, Pearson PLC, has anticipated the settlement by way of a $40 million accounting charge, reflecting that the actual cost to Penguin is likely to be considerably less than the $75 million proffered.

Vaughn v. LA Fitness: Settlement Reached in Auto-Billing Class Action

In a trio of class action cases consolidated in Pennsylvania’s Eastern District in which the plaintiffs alleged that automatic credit card charges continued beyond the cancellation of a gym membership and that cancellation procedures were excessively onerous, the parties have agreed to terms whereby LA Fitness will provide the class members with combinations of a 45-day LA Fitness pass and a refund for the dues that were automatically charged after memberships were cancelled. See National Class Action Settlement and Release, Vaughn v. L.A. Fitness Int’l, LLC, No. 11-2644 (E.D. Penn. Mar. 13, 2013) (available here). This settlement is expected to influence other consumer class actions in which it is alleged that automatic credit card charges continued beyond the cancellation of a membership, and/or that cancellation procedures are unduly cumbersome.

Specifically excluded from the virtually nationwide settlement are California residents, likely because California has recently enacted among the strictest laws governing the cancellation of automatic monthly payments. Widely known as the “California Gym Cancellation Law,” the Health Studio Services Contract statute (Cal. Civil Code §§ 1812.80-1812.97) would likely have made approval of the Vaughn settlement vulnerable to choice of law doctrines. Also excluded are New Jersey residents, who are class members in a separate class action in which settlement has been reported to be imminent.

The Vaughn complaint, filed in Florida federal court, explained the swiftness with which new members could be signed up, and contrasted that with LA Fitness’ arduous and hard-to-find cancellation procedures: “[W]hile it takes minutes for LA Fitness to sign up a person for a monthly dues membership, it is virtually impossible for a person to cancel the membership and stop paying dues when they want to.” Complaint at ¶ 4, Vaughn v. L.A. Fitness Int’l, LLC, No. 11-0457 (M.D. Fla. Filed Mar. 4, 2011) (available here).

The crux of the allegations in Vaughn and the two other settled actions is that LA Fitness’ representation of a “monthly” contract was deceptive, because as a practical matter new members were obligated to pay dues for a minimum of three months, not merely one month – if they could even effectuate the labyrinthine cancellation procedures. Complaint at ¶¶ 5-7; 19-27. The cancellation procedure was thus designed to “extract dues” and frustrate cancellation, rather than facilitating members’ cancelling a membership they no longer wanted. Complaint at ¶ 7. Exemplifying a growing trend, the plaintiffs made considerable use of online forums in which LA Fitness customers frustrated by their cancellation experiences detailed their attempts to cancel. Complaint at ¶¶ 42-55.