The U.S. Supreme Court just concluded a term that reshaped the class action landscape as a result of China Agritech, Inc. v. Resh and Epic Systems Corp. v. Lewis, opinions that were handed down on June 11 and May 21, respectively.
To gather insights on how these decisions will impact employers, employees, and labor and employment attorneys, Bloomberg Law reached out to Darrell R. VanDeusen and Alexander P. Berg of Kollman & Saucier, P.A. They responded to emailed questions on the two cases; below is an edited version of the responses they supplied.
Bloomberg Law: What did the Supreme Court decide in China Agritech, Inc. v. Resh, and how will class action litigation change as a result of the ruling?
VanDeusen and Berg: In China Agritech, a unanimous Court held that the filing of a putative class action does not toll the statute of limitations for follow-on class actions when class certification is denied. In plain English, plaintiffs may not resurrect a failed class action by filing another class action after the limitations period has expired.
In reaching this outcome, the Court distinguished its precedents in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), and Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983), which held that the filing of a class action does toll the limitations period for individuals who are seeking to intervene in the suit or to file their own individual claims after class certification is denied, respectively. “The ‘efficiency and economy of litigation’ that support tolling of individual claims,” the Court explained, “do not support maintenance of untimely successive class actions.” Rather, “any additional class filings should be made early on, soon after the commencement of the first action seeking class certification,” so that the court can either choose “the best plaintiff with knowledge of the full array of potential class representatives and class counsel” if a class is appropriate, or otherwise decide the class certification issue once and for all.
It is unlikely that class action litigation will change drastically because of the Court’s ruling. Justice Sotomayor expressed concern in her concurrence that incentivizing all potential lead plaintiffs to come forward at the outset could lead to more filings and a “reverse auction,” under which defense counsel would pit the various plaintiffs’ attorneys against each other to see who would accept the lowest settlement. However, Justice Ginsburg said no demonstrable uptick has occurred in federal circuits that have long prevented successive class action filings. In addition, encouraging potential lead plaintiffs to come forward sooner promotes efficiency and economy of litigation, as envisioned under American Pipe and Rule 23 of the Federal Rules of Civil Procedure.
Bloomberg Law: How do you expect this ruling to play out with respect to labor and employment cases?
VanDeusen and Berg: A footnote in the Court’s opinion suggests a possible answer to this question. The Court observed that following the denial of nationwide class certification in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011), numerous plaintiffs had either amended the original complaint to replead subclasses or separately asserted geographically regional subclasses within the limitations period. So, it would not be too surprising to see future plaintiffs file multiple parallel complaints raising different possible putative subclasses, with employers moving to stay the subclass actions until the court resolved whether to certify the larger class.
Bloomberg Law: The Supreme Court handed down another decision this term affecting class and collective actions, Epic Sys. Corp. v. Lewis. Would you highlight the key points of that ruling?
VanDeusen and Berg: The Court’s 5-4 Epic Systems decision was the latest in a decades-long line of cases enforcing arbitration clauses in private contracts. Specifically, the Court upheld individual arbitration clauses in employment contracts that waived an employee’s right to bring class or collective actions. The Court concluded that the public policy in favor of arbitration promoted under the 1925 Federal Arbitration Act did not violate the National Labor Relations Act’s provisions against employer actions that interfere with employees’ right to engage in protected concerted activity.
Bloomberg Law: Which of the two decisions do you expect to have the greatest impact on L&E practitioners?
VanDeusen and Berg: Epic Systems will probably impact labor and employment attorneys’ practice more on a day-to-day basis than China Agritech. Even in the few weeks that have passed since that decision, we have been getting many inquiries from employers that want to discuss whether to include arbitration clauses in their contracts, severance agreements, and, in some cases, company policies, as well as how to word such clauses to best protect company interests.
China Agritech will certainly impact the class action bar, but it is relatively infrequent for employees and plaintiffs’ attorneys to re-litigate a class action once it has been denied (as opposed to resorting to individual claims once the class action “door” has closed).
Bloomberg Law: Could you also speak more generally about what this will mean for employers and employees?
VanDeusen and Berg: Now that the Supreme Court has confirmed that individual arbitration clauses are enforceable, there may be an increase in the number of employers that utilize such clauses. One study cited by the Epic Systems Court suggested that the number of employers that feature such arbitration clauses has grown steadily from just over 2 percent in 1992 to over 50 percent today. That number can probably be expected to grow further.
Employers should also keep in mind that whether to include arbitration clauses and whether to invoke those clauses when a dispute arises are two separate issues. Thus, there may be certain situations (a plaintiffs’ attorney who represents several employees raising the same wage-and-hour law issue, for example) where having a court resolve the dispute once and for all is more cost-effective for employers than footing the bill for several one-off arbitrations, with the possibility of inconsistent outcomes and multiple awards of attorneys’ fees.
Bloomberg Law: Looking back at other decisions the justices have handed down in recent years, has there been a trend or common theme in rulings related to class actions?
VanDeusen and Berg: The justices’ trend of promoting individual dispute resolution (whether in litigation or arbitration) over class and collective actions in a manner that benefits employers is undeniable. The Court has effectively re-emphasized its language in Wal-Mart that class and collective actions are “exception[s] to the usual rule that litigation [or other dispute resolution] is conducted by and on behalf of the individual named parties only.” That rule has only grown in importance, and the class action “exception” has, correspondingly, grown weaker. This trend is consistent with what Justice Ginsburg (who authored China Agritech) identified as the “pressure on the defendant to settle even unmeritorious claims” once a class has been certified. See Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393, 445 n.3 (2010) (Ginsburg, J., dissenting).
Bloomberg Law: Are there other cases in the pipeline that address issues related to class actions?
VanDeusen and Berg: There are already two other class action-related cases in the pipeline (or, if you will, the American Pipe-line) for the Supreme Court’s upcoming term in October. First, in Frank v. Gaos, the Court will consider whether cy pres (“as near as possible”) settlements, where otherwise unclaimed portions of class-action settlement proceeds are given to a related charity, are permissible even where the charity receiving such funds has not been injured by the conduct at issue.
Second, in Lamps Plus, Inc. v. Varela, the Court will consider an issue surrounding arbitration clauses that is related to the Epic Systems decision. Specifically, the Court has been asked to clarify under what standard a court may conclude that there is a “contractual basis” for classwide—as opposed to individual—arbitration.
Bloomberg Law: Finally, what are the main takeaways for L&E practitioners, employers, and employees?
VanDeusen and Berg: All labor and employment “constituents” should be mindful that the federal rules and the Supreme Court’s class action precedent are geared toward prompt, efficient resolution of the issues on the merits. That said, individual dispute resolution in whatever forum (courts or arbitration) remains generally the most efficient path for all parties.
In light of China Agritech, employees and plaintiffs’ attorneys will need to pursue prospective class action claims with increased diligence for fear of missing out on limitations grounds. And in light of Epic Systems, employers and their attorneys should consider whether it is worthwhile to include and invoke individual arbitration clauses.
Lastly, when faced with the potential for class action litigation, employers and their attorneys should emphasize why narrower class or subclass definitions are preferable from a judicial resolution standpoint compared to larger putative class actions.
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