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How Not to Settle a Class Action

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Settling a workplace class action is far more complicated than resolving other types of litigation. Yet, the fundamental building blocks of settling a case—an offer, acceptance of precise terms, and substantiation of the agreement—are equally as important in resolving a simple as well as a complex piece of litigation.

On Sept. 23, Judge Amy St. Eve of the U.S. District Court for the Northern District of Illinois in Craftwood Lumber Co. v. Interline Brands, Inc., drove home this point. The court held that, despite creating a “term sheet” outlining certain terms of a purported class action settlement, the parties had not reached an enforceable settlement.

This ruling illustrates that although parties may be bound to a class settlement prior to the creation of the final agreement, which is what occurred in the Tenth Circuit decision of Miller v. Basic Research, LLC, covered here, that in order to be bound, the parties must have at least reached an agreement to the materials terms of the contract and exhibit the intent to be bound.

Although it is not an employment-related case, Judge St. Eve’s ruling in Craftwood Lumber ought to be required reading for any employer entering into settlement negotiations relative to a class action.

Background

Plaintiff, Craftwood Lumber, brought a putative class action alleging that the defendant, Interline Brands, Inc., violated the Telephone Consumer Protective Act of 1999, by sending at least 1,500 advertisements in at least 735,000 facsimile transmissions, some of which were received by the plaintiff. The parties attempted to settle the case through mediation. At the end of the one-day session, the parties and counsel hastily signed a one-page document titled “Term Sheet.”

In the following weeks the parties unsuccessfully attempted to negotiate a written settlement agreement. The defendant brought a motion to enforce the settlement, and in support, it provided the court with a copy of the Term Sheet, arguing that the parties had entered into a settlement agreement. The plaintiff’s counsel objected, asserting that there was no agreement and that it was a violation of the confidentiality agreement to produce the Term Sheet to the Court.

The Court’s Opinion

Judge St. Eve held that the Term Sheet failed to include several terms that were material to the class action settlement. The most significant omission was the amount per claim—what the defendant would pay any class member for each fax recipient or each fax transmission. Additionally, the Term Sheet lacked any release terms and settlement class definition. The court reasoned that the provisions upon which the defendant was basing its assertion that an agreement had been reached were insufficient to reasonably imply the missing terms. Judge St. Eve determined that she was unwilling to select those terms from the wide range of potential possibilities. Ultimately, the court held that in addition to lacking materials terms, it was unclear whether the parties intended to be bound by the Term Sheet. On this basis, the court held that the parties did not enter in to an enforceable settlement agreement.

Implications for Employers

This ruling illustrates what can go awry in terms of documenting an enforceable class action settlement. In order to secure an enforceable settlement agreement, the parties must reach an agreement on the material terms and evidence an intent to be bound. Normally, this situation is not a problem, given that the parties normally will strive to achieve these ends in the settlement agreement. This translates into investing significant time and effort to craft a precise Term Sheet; covering all of the key terms of the settlement (such as the class definition, the class pay-out distribution formula, and myriad other bells and whistles that make up a Rule 23 class-wide settlement); and not leaving the settlement/mediation session unless and until all of these issues are covered and both parties express their intent to be bound. Simple, but critical.

This column previously appeared on the Seyfarth Shaw website.

Bifurcation in the Wake of Comcast

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Recently the U.S. District Court for the Southern District of New York certified a liability class in a Title VII suit brought against the United States Census Bureau. In Houser v. Pritzker, Magistrate Judge Frank Maas found that five of eight named plaintiffs had standing to bring suit, and further held that the proposed class met the commonality and typicality requirements of Rule 23(a).

The judge declined, however, to certify a damages class. Analyzing the Supreme Court’s decision in Comcast Corp. v. Behrend, which significantly raised the bar for predominance under Rule 23(b), Magistrate Judge Maas found that certification of a damages class was inappropriate given the highly individualized nature of each class member’s damages. Rather than reject certification entirely, the Court chose to exercise its discretion under Rule 23(c)(4) to bifurcate the liability and damages phase, and proceed to adjudication of the liability questions.

As such, the decision of Houser is of significant importance to all employers in the workplace class action context.

Background

The United States Census Bureau conducts a nationwide census every 10 years, known as the Decennial Census. The 2010 Decennial Census created 1.3 million temporary employment positions between October 2008 and September 2010, and the Census Bureau received about 3.8 million applications for these positions.

In screening job applicants, the Census Bureau required all applicants with a criminal record to provide “official court documentation” of their prior arrests and convictions within 30 days of receipt of a demand letter. Once the documentation was received, staff members would review and determine whether to treat the applicant as available for hire, or request further information.

In 2010, eight individuals filed a purported class action suit challenging these procedures as non-job related and discriminatory because they negatively impacted the hiring of African-Americans and Latinos for obtaining employment.

The Court’s Decision

Magistrate Judge Maas focused primarily on two issues – subject matter jurisdiction and class certification under Rule 23 – in his ruling.

Subject Matter Jurisdiction  

The Census Bureau moved to dismiss the suit for lack of subject matter jurisdiction pursuant to Rule 12(b)(1). The court examined whether the named plaintiffs had standing to bring suit and whether a favorable decision could redress their injuries.

First, the court concluded that five of the eight named plaintiffs individually possessed Article III standing to bring suit because they met the bare minimum qualifications for employment. Even though the Census Bureau established that the candidates would not have been hired due to a variety of factors ‒ geography, test scores and availability, among others ‒ the court rejected the notion that Title VII plaintiffs must show that they ultimately would have secured employment. Rather, “the question here is whether the Census Bureau’s allegedly discriminatory practices place any of the named plaintiffs on an unequal footing in terms of their ability to compete for employment.” In answer to this question, the court determined that the “five plaintiffs have established that they were eligible to be considered for employment but were denied the opportunity to compete with other applicants. That showing is sufficient to confer standing under Title VII.”

The court also held that the requested relief could redress the injuries of the same five plaintiffs. The court rejected the Census Bureau’s argument that each plaintiff was “precluded from selection for reasons entirely independent of the challenged policies and procedures” and therefore had no injuries that could be redressed by the relief sought. The court noted that these arguments were simply “repackaged” arguments relating to standing, and it denied the Census Bureau’s motion to dismiss.

Class Certification

Next, the court examined certification of the class. The court found without hesitation that the class met the standard for commonality under the Supreme Court’s decision in Wal-Mart Stores v. Dukes, 131 S. Ct., and commented that Dukes seemed to address the very situation at bar, where there was a “testing procedure to evaluate [all] applicants for employment” and “a class action on behalf of every applicant or employee who might have been prejudiced.” The court found that the parties had all but agreed that the “central questions in the case have a common, classwide answer; [and] the only point on which the parties disagree is the answers themselves.”

In examining typicality, the court noted that the only two Latino class representatives were not among the five plaintiffs with standing, and therefore the court declined to certify a class including Latino class members. This class definition seems unlikely to hold, however, as the court noted that Plaintiffs will have an opportunity to identify other Latino representatives, and the court may in its discretion amend the class definition at that time.

Finally, the court examined the predominance requirement of Rule 23(b) and found no bar to certification with respect to injunctive relief. The court’s analysis of damages sub-classes, however, was quite different. The court explained that “[t]he Supreme Court recently emphasized the stringency of the predominance requirement in Comcast Corp. v. Behrend” which requires that plaintiffs offer a damages model capable of calculating damages across the class. Given the “highly individualized nature” of analyzing damages as to any individual class member in this case, the court found that individual questions would predominate and the stringent requirements of Comcast were not met.

Nevertheless, the court found that Comcast did not mandate denial of class certification in its entirety. Rule 23(c)(4) allows a court in its discretion to maintain a class action only with respect to particular issues, and Magistrate Judge Mass opined that “nothing in the [Comcast] ruling appears to have taken that option off the table in future lawsuits.” The court noted that although Comcast did not bifurcate the issues under Rule 23(c)(4), the plaintiffs in that suit did not request that relief.

Implications for Employers

Courts have disagreed as to the effect of Comcast on class certification. Some have held that the decision requires a class-wide model for calculating damages in order to certify a class for any purpose, while other courts have bifurcated liability and damages phases and granted certification only with respect to the former. Indeed, district courts in the Second Circuit have reached different conclusions, and the Court of Appeals for the Second Circuit seems poised todecide the issue. Employers should be watching carefully.

This blog was previously published on the Seyfarth Shaw website.

EEOC Oversight: Congress Considers Accountability Proposal

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The Equal Employment Opportunity Commission (EEOC) has encountered a series of set-backs over the last several years in terms of big losses and fee sanction awards. Our past blog posts have reported on these court rulings and defeats (here, here, here, and here.) As a result, criticism has mounted, stakeholders have complained, and now some members of Congress want to do something about it.

Most recently, on June 10, the House Committee on Education and the Workforce, Subcommittee on Workforce Protections held a hearing titled “The Regulatory and Enforcement Priorities of the EEOC: Examining the Concerns of Stakeholders.” Representatives of various stake-holders testified, including the U.S. Chamber of Commerce.

Referencing complaints raised at EEOC meetings in 2012 and 2013, the Chamber pointed to a rare consensus between plaintiff and defense bars—that EEOC investigations “[are] too long, inconsistent and of questionable quality.” The Chamber noted that the EEOC has so far failed to address those complaints by providing investigators with timeliness standards or a definition of a “quality, limited investigation.” In addition, the Chamber highlighted the agency’s propensity for litigation at the expense of sound investigation and good-faith conciliation. As a key example, the Chamber cited the EEOC’s “stonewalling” in EEOC v. CRST Van Expedited, Inc., where EEOC’s failure to exhaust administrative remedies and to properly investigate before resorting to litigation led to $4.7 million in sanctions. The Chamber’s testimony can be downloaded here. Concurrent with the hearing, the Chamber released a white paper titled “Review of Enforcement and Litigation Strategy during the Obama Administration—A Misuse of Authority.”

Against this backdrop, on June 25, Rep. Richard Hudson (R-N.C.) a member of the House Committee on Education & the Workforce, introduced the Equal Employment Opportunity Commission (EEOC) Transparency and Accountability Act (H.R. 4959). A Fact Sheet on the proposed bill is here.

Summary of H.R. 4959

The proposed legislation would require the EEOC to post on its website and in its annual report an array of information to promote transparency.

In a press release announcing the bill, Congressman Hudson said: “The EEOC is tasked with a noble mission to protect American workers and job-seekers from discrimination in the workplace and hiring practices. Recently, however, the EEOC overstepped its bounds by litigating numerous cases found to be frivolous, groundless, and baseless, that have caused undue burdens on numerous businesses and industries. It is critical that Congress provides meaningful oversight to certify that the EEOC stays focused on carrying out its core mission. This legislation will increase transparency and accountability at the EEOC to help ensure that the agency fulfills its duty and adequately balances the interests of both employers and workers.”

Among other things, the proposed legislation would require the EEOC to post on its website and in its annual report an array of information to promote transparency, including any case in which EEOC was required to pay fees or costs, or where a sanction was imposed against it by a court; the total number of charges filed by an EEOC member or as a result of a directed investigation; and each systemic discrimination lawsuit brought by the EEOC.

It also would require the EEOC to conduct conciliation endeavors in good faith and such endeavors would be subject to judicial review.

Further, the bill would require the EEOC’s Inspector General (IG) to notify Congress within 14 days when a court has ordered sanctions against EEOC. The IG must also conduct a thorough investigation of why the agency brought the case, and submit a report to Congress within 90 days of the court’s decision explaining why sanctions were imposed. In addition, the bill would require the EEOC to submit a report to Congress within 60 days of the court’s decision detailing steps EEOC is taking to reduce instances in which it is subject to court-ordered sanctions; further, the EEOC would have to post this report to its website within 30 days of submitting to Congress.

Implications for Employers

The proposed bill is one measure of the degree of frustration that stakeholders have with the job the EEOC is doing. While no one questions the importance of the Commission’s mission to root out and eradicate employment discrimination, many question the manner in which the EEOC has wielded its power. Employers should stay tuned, as future chapters in this debate are sure to be written in the coming months.

This blog previously appeared on the Seyfarth Shaw website.

Chicago Board of Ed Wins Battle with Teachers Union

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On May 27, 2014, the U.S. District Court for the Northern District of Illinois handed a major win to the Chicago Board of Education in its battle with the Chicago Teachers Union over the selection of 10 schools for turnaround in 2012, which affected the jobs of more than 200 African-American teachers and para-professionals. The decision – Chicago Teachers Union v. Board of Education of Chicago—is reflective of a growing trend that raises the Rule 23 class certification bar in employment discrimination class actions.

In an important lesson for all employers, the Court held that the Board’s rigorous, individualized assessment of the schools considered for turnaround meant that the case was unsuitable for class treatment of plaintiffs’ discrimination claims.

Background

Under the Illinois School Code, schools may be subject to a “turnaround” if they had been on probation for at least one year and have failed to make adequate progress in correcting deficiencies. In a turnaround, the Board of Education takes control of the school and removes all staff. Affected teachers and para-professionals are either placed in a reassignment pool or a substitution pool with different rights to salary and other benefits depending on their tenure status and job position.

In 2011, the Board began considering which school should be turned around in 2012. The process started with an initial list of 226 schools. That list was reduced to 74 schools based on composite standardized test scores and graduation rates. Subsequently, a qualitative “in-depth investigation process” began for the remaining 74 schools. This involved school visits, additional data collection, and meetings with a variety of school representatives and community members. No written policy applied to the turnaround decision and no one set of factors was applied to determine whether a turnaround was appropriate for a particular school. Some of the factors considered were: the academic culture of the school, whether quality instruction was being provided, the quality of the leadership, and the academic trends of the school.

After reviewing the information, the Board ultimately voted to turnaround 10 schools. The schools were located exclusively on the south and west sides of Chicago where African-Americans made up 40.9% of tenured teachers. The total percentage of African-American tenured teachers at the 10 schools selected for turnaround was approximately 51%, while the total percentage of African-American tenured teachers in the entire Chicago public school system was only 25%.

The Chicago Teachers Union and three African-American tenured teachers brought suit against the Chicago Board of Education alleging that the board’s decision to turn around 10 Chicago public schools was racially discriminatory. Plaintiff sought to certify a class consisting of all African-American teachers or para-professionals in any school subjected to the 2012 turnarounds.

The Certification Decision

The Court held that the individualized, qualitative nature of the Board’s selection process made the case unsuitable for class certification. Relying on Wal-Mart v. Dukes, the Court held that it could not resolve “in one stroke” the question of whether the Board’s turnaround policy was discriminatory as applied to all class members because that would require an examination of the rationale behind the decisions to turnaround each of the 10 schools selected for turnaround in comparison with the decisions concerning the remaining 63 schools that had not been selected. The Court noted that its decision may have been different if schools had been selected based solely on objectively measurable criteria applied across the board, which would have eliminated the need for further review into how the criteria were applied to individual schools.

Although the commonality question drove its decision, the Court went on to analyze the other class certification requirements. In particular, the Court found that plaintiffs had failed to establish that they met the requirements of Rule 23(b)(2) or the predominance requirement of Rule 23(b)(3).

The Court held that plaintiffs’ claims for relief were not amenable to certification under Rule 23(b)(2) because the injunctive and declaratory relief sought by plaintiffs would merely initiate a process through which highly individualized determinations of liability and remedy would have to be made. The relief would be class-wide in name only, and could not be final without further individualized inquiries involving, for example, placement of individual class members in specific jobs based on their qualifications or providing them with back pay and front pay if no positions were available.

With respect to Rule 23(b)(3), the Court held that the case was unsuitable for class treatment because individualized questions of liability and damages would predominate over common questions. Because the selection process involved a qualitative review, claims would have to be resolved on a school-by-school basis, eliminating any efficiencies gained by certifying the matter as a class action. The Court went on to note, however, that the mere fact that damages may be individualized would not preclude certification. Distinguishing the Supreme Court’s decision in Comcast v. Behrend, 133 S. Ct. 1426 (2013), the Court held that it was enough for class certification purposes that all putative class members attributed their damages to the turnaround decisions. Although the extent to which individual class members were able to mitigate their damages would involve individualized inquiries, those were not enough to merit departure from the prevailing rule that individualized damage issues will not preclude class certification.

Implications for Employers

This case is another interesting decision in the line of cases interpreting Wal-Mart Stores, Inc. v. Dukes. The Court applied the reasoning of Wal-Mart to hold that a policy of selecting schools for turnaround that relied on the individualized application of common criteria was not enough of a common policy such that the claims of all class members could be resolved in one stroke. In other words, because each school got a separate, fact-intensive and individualized review, there was no one common question that could provide a common answer on an essential question of liability for the entire class.

This has important implications for all employers considering any kind of mass lay-offs. Common, across-the-board numerical or objective criteria that are applied to select individuals for termination are going to make the company’s actions more easily challenged on a class-wide basis. To the extent that an employer utilizes and can document a more searching, qualitative selection process, this decision supports that approach as a process that may be better immunized from attack on a class-wide basis.

This blog was previously posted on the Seyfarth Shaw website.