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Posts Tagged ‘class action’

Federal Securities Laws: Has the 9th Circuit Gone Rogue Again?

Posted on: February 4th, 2019

By: John Goselin

On January 4, 2019, the United States Supreme Court decided to hear an appeal from the Ninth Circuit’s April 20, 2018 decision in Varjabedian v. Emulex Corporation, 888 F.3d 399 (9th Cir. 2018). The Supreme Court is hearing this case to resolve a circuit split regarding whether a claim under Section 14(e) of the Securities Exchange Act of 1934 requires the plaintiff to plead a strong inference that the defendants acted with scienter (i.e. intent to defraud) or whether Section 14(e) merely requires an allegation that the defendants were negligent. Section 14(e) is a provision of the Securities Exchange Act of 1934 that prohibits a company involved in a tender offer from making a material misstatement or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading or to engage in any fraudulent, deceptive or manipulative acts or practices in connection with a tender offer.

Prior to the 9th Circuit’s April 20, 2018 opinion, no Circuit split had existed. Over the course of the forty-five preceding years, the Second, Third, Fifth, Sixth and Eleventh Circuits had uniformly held that Section 14(e) required a plaintiff to plead scienter when stating a claim pursuant to Section 14(e). Despite four and half decades of consensus, the 9th Circuit concluded that every Circuit Court to address this particular issue previously had simply gotten it wrong and that if the Supreme Court considered the issue, the Supreme Court would conclude that Section 14(e) only required the plaintiff to plead negligence.

Until recently, plaintiffs had historically chosen to challenge tender offers in state court, most often Delaware state court, pursuant to state law disclosure obligations. Challenging tender offers is big business as almost every tender offer conducted results in multiple state court class action lawsuits seeking injunctions to halt the tender offers until so-called disclosure deficiencies are rectified. The cases are high profile, high risk and involve significant legal defense costs that D&O carriers often end up paying pursuant to the provisions of D&O insurance policies.  The plaintiff’s lawyers have historically been successful in playing the role of the troll under the bridge collecting hefty tolls (a.k.a legal fees) for “improving” disclosures in tender offers as the tender offer participants seek to avoid the risk of a potential injunction that could halt the tender offer.

Recently, however, the Delaware state courts where the majority of these cases have been pursued have been clamping down on these “disclosure claims” making the state court forum less lucrative for the plaintiff’s bar. Hence, the plaintiff’s bar has been turning increasingly to Section 14(e) of the Securities Exchange Act of 1934 as an alternative cause of action in a federal forum in an effort to continue collecting their attorney fee tolls. The problem, however, is that if Section 14(e) requires the plaintiff to plead “scienter” and the plaintiff wants to bring a class action to put maximum pressure on the company, the plaintiff would have to comply with the heightened pleading requirements of the Private Securities Litigation Reform Act of 1995 and plead facts, not conclusory statements, sufficient to support a “strong inference” of scienter. The plaintiff’s bar would very much like to avoid this particular pleading, and burden of proof, hurdle.

So, the 9th Circuit’s decision adopting a mere negligence standard is a very big deal creating a window through which the plaintiff’s bar hopes to continue their troll under the bridge strategy at least out West and provides the plaintiff’s bar a new opportunity to challenge the prior holdings in the other Circuit Courts. The Supreme Court, however, has taken the opportunity to decide the issue and will either shut this particular door quickly or swing it wide open by deciding the issue of negligence or scienter for Section 14(e) claims.  Every securities lawyer in America will be watching closely.

If you have any questions or would like more information, please contact John Goselin at [email protected].

80/20 Hindsight: The DOL Issues Opinion Letter That Concludes The 80/20 Side Work Rule For Tipped Employees No Longer Applies

Posted on: November 15th, 2018

By: Michael Hill

Navigating the laws for paying tipped employees just got a little easier. In a new opinion letter, the U.S. Department of Labor (“DOL”) effectively nullified the “80/20 Rule,” which divided courts throughout the country and became the anchor point for several collective and class actions against employers of tipped employees.

While the federal minimum wage is $7.25/hour, employers of tipped employees, such as waiters, bartenders, and bellhops, are permitted to pay such employees $2.13/hour and take a “tip credit” for the difference between this wage and the federal minimum wage (provided the employees receive notice and the tip credit does not exceed what they actually earn in tips).

The DOL’s 80/20 Rule acknowledged the fact that tipped employees may spend some time performing tasks that do not generate tips. Servers in a restaurant, for example, generally spend time performing “side work” that is incidental but related to serving customers, such as rolling silverware, making coffee, cleaning tables, or sweeping the dining room floor, in addition to waiting tables. Under the 80/20 Rule, an employer still could claim a tip credit for all of such an employee’s time, as long as the employee did not spend more than 20% of his or her time performing “general preparation work or maintenance.”

Strict application of the 80/20 Rule essentially meant employers of tipped employees were expected to monitor each and every task their employees performed and to maintain meticulous time logs accounting for each individual task. Some courts recognized this was infeasible, while others held this to be what the law required. The tide of litigation rolled in, with predictable swearing contests over whether servers and bartenders spent more than 20% of their time performing non-tip-generating tasks.

The DOL now, however, has recognized the confusion its 80/20 Rule generated and clarified that employers may take the tip credit for all of their tipped employees time, no matter how much time is spent on related “side work” tasks, so long as these side tasks are performed contemporaneously with the employees’ customer-service duties or within a reasonable time immediately beforehand or afterwards and the tasks are listed for that job position in the Occupational Information Network (O*NET).

If you have any questions or would like more information, please contact Michael Hill at [email protected].

 

Ninth Circuit’s Decision Upholding Arbitration Clause Enables Uber To Sidestep Substantive Issues Regarding Misclassification

Posted on: October 10th, 2018

By: Laura Flynn

In O’Connor v. Uber, a case in which California Uber drivers assert they should be categorized as employees rather than independent contractors, the Ninth Circuit Court of Appeals recently issued an order reversing the district court’s denial of Uber’s motions to compel arbitration. The Court rejected Plaintiffs’ assertion Uber’s arbitration agreements were unenforceable. The Court’s decision reversing the order denying arbitration was based on Mohamed v. Uber, 848 F.3d 1201 (9th Cir.  2016) wherein the Court found the relevant provisions delegated the threshold question of arbitrability to the arbitrator, that the delegation provisions were not adhesive and were therefore not procedurally unconscionable, and that the provisions allowing drivers to opt-out of arbitrations were not illusory. The Court rejected Plaintiffs’ additional argument the arbitration agreements were unenforceable because they contained class action waivers that violate the National Labor Relations Act of 1935 pointing to the recent Supreme Court decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018). As the class certification by the district court was premised on its determination the arbitration agreements were unenforceable, the order certifying a class of approximately 160,000 Uber drivers was also reversed.

Based on the Court’s decision, it appears Uber drivers will have to purse their misclassification claims individually through arbitration. The limited pool of arbitrators, the amount of time it takes to arbitrate an individual claim, the smaller payout for attorneys, and lack of precedential value associated with arbitrations will likely discourage some drivers from pursuing their claims.

If you have any questions or would like more information, please contact Laura Flynn at [email protected].

 

For further reading, see our blogs discussing this matter:

Working Without a Net

Posted on: September 14th, 2018

By: Seth Kirby

For the legal professional, careful and appropriate selection of insurance is an essential component of practice management.  When faced with potential liability for an alleged mistake, attorneys should want the safety and security of relying upon their insurance carrier to help mitigate the potential liabilities that accompany their practice.  Unfortunately, many attorneys do not see the gaps in their insurance coverage until they are faced with a claim arising from their business activities.  A recent unpublished decision by the 4th Circuit Court of Appeals is illustrative of this dilemma.  In Hartford Casualty Insurance Co. v. Ted A. Greve & Associates PA, case number 17-2407, in the U.S. Court of Appeals for the Fourth Circuit, the Court affirmed a general liability carrier’s denial of coverage to a personal injury law firm that was sued for alleged violations of North Carolina’s Driver’s Privacy Protection Act.  Apparently the firm had been obtaining crash reports from the state’s Division of Motor Vehicles and then using the information contained in those reports to solicit business from the involved drivers.  When faced with a class action lawsuit arising from these activities, the firm’s general liability carrier denied coverage on the basis that the claims were excluded as they arose out of a violation of a state statute.  The Court approved the denial, rejecting the firm’s contention that the claim could be viewed as a common law invasion of privacy.

This decision has very little significance outside of the unique facts of the case.  Indeed, it is conceivable that the firm at issue in the case may have other types of coverage that fill this gap.  Nevertheless, it serves as an important reminder that firms should carefully review all aspects of their operations and consider whether their particular areas of exposure are covered.  Does the firm engage in novel or unique advertising to solicit business?  Does the firm use litigation financing to assist in pursuing claims?  Does the firm have potential contractual exposure because it is acting as a title agent?  These are just a few of the questions that lawyers must consider when evaluating their risk profile and in determining the nature and extent of insurance products that they should purchase.  Frankly, this task is too difficult, and the consequences are too severe, to attempt without professional assistance.  A meaningful relationship with a qualified insurance broker that specializes in professional liability placement is an invaluable resource for law firms.  The broker can often spot risks that the firm is blind to, and they are certainly more familiar with the insurance products that may provide valuable protection to the firm.

It is impossible to accurately predict what the future holds, but careful examination, and regular reexamination, of a law firm’s business model can go a long way toward identifying the dangers that lie ahead.  Absent such careful planning, lawyers are literally working without a net and potentially setting themselves up for drastic financial consequences in the event of an alleged error.

If you have any questions or would like more information, please contact Seth Kirby at [email protected].

Another Day, Another Dollar: Private Detention Center Sued By Detainees for Violations of the Washington Minimum Wage Act

Posted on: August 9th, 2018

By: Layli Eskandari Deal

A lawsuit filed by thousands of detained immigrants held at the Northwest Detention Center (NWDC) in Tacoma, Washington alleges systematic wage theft by GEO Group, Inc.  The Plaintiffs seek to recover wages under the Washington Minimum Wage Act, as well as other damages allowable under State law.

GEO Group, Inc. has owned and operated the NWDC, which has 1,500 beds for immigrants, since 2005.  The lawsuit alleges that rather than hire from local workforce, GEO relies upon “captive detainee workers to clean, maintain, and operate NWDC.”  It further states that “GEO’s NWDC Detainee Handbook describes detainee work assignments as including kitchen and laundry work, as well as recreation/library/barber and janitorial services.  The Handbook refers to these various tasks as ‘work’ and a ‘job,’ and references ‘wages earned’ by detainee ‘workers.’”

The Plaintiffs asked the Federal District Court for class certification.  Judge Robert Bryan of the U.S. District Court for the Western District of Washington determined that the detained immigrants have an “employment relationship with GEO.”  The Judge determined that the group of detained immigrants all participate in a volunteer program at NWDC and allege the same “injury,” which is that they are only paid a $1 per day for work, “an amount not commensurate” with the law.  The Judge granted certification for the Plaintiffs to proceed as a class.

In addition to the Federal lawsuit, the State of Washington has also brought a lawsuit against GEO Group, Inc. in the State Superior Court that alleges GEO is violating the State’s minimum wage laws.  The Attorney General for the State of Washington, Bob Ferguson, stated, “A multi-billion dollar corporation is trying to get away with paying its workers $1 per day. That shouldn’t happen in America, and I will not tolerate it happening in Washington. For-profit companies cannot exploit Washington workers.”

Multiple lawsuits have been filed against private prisons, including GEO and others, over detainee pay and other issues. The lawsuits allege that the private prison giants use voluntary work programs to violate state minimum wage laws, the Trafficking Victims Protection Act, unjust enrichment and other labor statutes.  The outcome of these cases will have significant effect on the way prison systems treat and compensate detained workers.

For additional information related to this topic and for advice regarding how to navigate U.S. immigration laws you may contact Layli Eskandari Deal of the law firm of Freeman Mathis & Gary, LLP at (770-551-2700) or [email protected].