Duane Morris Takeaway: As the ultimate referee of law, the U.S. Supreme Court traditionally has defined the playing field for class action litigation and, through its rulings, has impacted the class action landscape. The past year was no exception. Although the U.S. Supreme Court did not directly address the procedural mechanisms that govern class actions during its most recent term, it issued multiple decisions that are sure to influence the class action space.
The most momentous decision came in Loper Bright Enterprises v. Raimondo, et al., 144 S. Ct. 2244 (2024), wherein the Supreme Court overruled Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and undercut the authority of administrative agencies to engage in rulemaking. In doing so, the Supreme Court made clear that lower courts faced with class actions brought under the FLSA, ERISA, and TCPA, for example, must exercise their independent judgment in interpreting statutory provisions without deference to administrative agencies' interpretations of those statutes.
The Supreme Court also issued a trio of mixed rulings regarding arbitration, including decisions that bear on the use of the Federal Arbitration Act to enforce arbitration agreements with class action waivers, and a number of miscellaneous rulings that likely will impact class actions in the areas of securities fraud, civil rights, preemption, and Title VII.
Watch partner Jerry Maatman discuss this trend in more detail in the video below:
Loper Bright Enterprises v. Raimondo, et al., 144 S. Ct. 2244 (2024)
The so-called Chevron doctrine, a fixture of administrative law for nearly four decades, emanates from the U.S. Supreme Court's decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and essentially required courts to defer to an agency's reasonable interpretation of ambiguous laws. The Chevron doctrine involves two steps: (i) first, a court should determine whether the statute in question is unambiguous and, if so, apply its plain meaning; and (ii) second, if the court finds the statute ambiguous, the court should defer to the agency's interpretation so long as the interpretation is reasonable or permissible.
On June 28, 2024, the U.S. Supreme Court in Loper Bright Enterprises v. Raimondo, et al., 144 S. Ct. 2244 (2024), overturned the 40-year-old Chevron doctrine and held that, when Congress passes an ambiguous law, there is no implied delegation of power to an administrative agency to define its own authority or to say that the law means. The plaintiffs, two sets of commercial fishermen, challenged the authority of councils established under the National Marine Fisheries Service (NMFS) to promulgate a rule requiring Atlantic herring fishermen to cover costs of federally-mandated observers aboard their vessels under the Magnuson-Stevens Fishery Conservation and Management Act (MSA).
Two district courts granted summary judgment, concluding that, where a statute governing its authority falls within the Chevron doctrine, the NMFS is authorized to promulgate rules, and courts are required to defer to its interpretations of ambiguous statutes. Both the D.C. and the First Circuit courts affirmed. Id. at 2256-57. The U.S. Supreme Court granted certiorari regarding the question of Chevron's continued validity. Id. at 2257.
The Supreme Court vacated the judgments of the courts below and remanded. The Supreme Court held that requiring judicial deference to agency interpretations violates the Administrative Procedure Act (APA), which expressly grants courts authority to review and decide issues of law. Id. at 2263. The Supreme Court explained that, unlike courts, "agencies have no special competence in resolving statutory ambiguities," particularly when it comes to statutes governing agencies' own power or authority. The Supreme Court concluded that "Chevron gravely erred." Id. at 2266.
Loper Bright is poised to impact class actions of all types. In class action litigation, plaintiffs routinely invoke the Chevron doctrine as a powerful tool to pursue broad claims against corporate defendants based on administrative regulations that often exceed statutory requirements. Invoking this doctrine, plaintiffs argue that a court must defer to agency rulemaking whenever the agency's interpretation supports the litigant's claims or undermines the defenses of their opponents. For decades, for example, the U.S. Department of Labor (DOL) has enforced the FLSA and other wage and hour laws through extensive regulations and administrative guidance. Whereas the regulations enjoyed considerable deference under Chevron, their future is uncertain under Loper Bright as the decision now requires courts to exercise their independent judgment. Litigants already are feeling the effect of Loper Bright on the FLSA, as demonstrated by a recent decision by the Fifth Circuit invalidating an FLSA regulation regarding the tip credit.
In Restaurant Law Center, et al. v. United States Department of Labor, 2024 WL 4609380 (5th Cir. Aug. 23, 2024), the Fifth Circuit invoked Loper Bright to vacate the DOL's so-called "80/20" rule. The FLSA defines a "tipped employee" as any employee "engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips," 29 U.S.C. §207(t), and allows an employer to pay such persons a cash wage less than minimum wage. The DOL adopted a regulation establishing limits on the amount of time tipped employees may perform non-tipped work at the cash wage, the thought being that, if the worker spends too much time performing non-tipped activities, the worker is no longer "engaged in [the tipped] occupation." Under the rule, if an employee spends (i) more than 20% of a workweek performing non-tipped activities or (ii) more than 30 continuous minutes per shift performing non-tipped duties, the employee does not qualify as "tipped," and the employer may not pay the cash wage. The Fifth Circuit found the 80/20 rule inconsistent with the statutory text of the FLSA because it impermissibly "disaggregates the component tasks of a single occupation" and thus "applies the tip credit in a manner inconsistent with the FLSA's text." Id. at *8-9. Citing Loper Bright and noting the existence of the 80/20 standard since 1988, the Fifth Circuit nonetheless was "not persuaded that the 80/20 standard, however longstanding, can defeat the FLSA's plain text." Id. at *9.
The Supreme Court foreshadowed another casualty of Loper-Bright in its decision in Helix Energy Solutions Group, Inc. v. Hewitt, 598 U.S. 39 (2023), wherein it held that highly-compensated employees paid on a daily, hourly, or shift basis do not satisfy the FLSA's salary basis test. In his dissent, Justice Kavanaugh noted that the Supreme Court's holding depended on the FLSA regulations, and those "regulations themselves may be inconsistent with the Fair Labor Standards Act." Id. at 67 (Kavanaugh, J., dissenting). Because the relevant FLSA statutory language regarding exemptions "focuses on whether the employee performs executive duties, not how much an employee is paid or how an employee is paid," Justice Kavanaugh concluded that it was "questionable whether the Department's regulations — which look not only at an employee's duties but also at how much an employee is paid and how an employee is paid — will survive if and when the regulations are challenged as inconsistent with the Act." Id. Justice Kavanaugh's implicit invitation to issue such a challenge, coupled with the demise of Chevron, very well may bring more changes to longstanding regulations that fuel hundreds of class action lawsuits each year.
Loper Bright also may fuel challenges related to fiduciary investment strategies. In a rule published in 2022, the U.S. Department of Labor explicitly allowed ERISA fiduciaries to consider environmental, social, and governance factors in selecting investments. In Utah v. Su, 109 F.4th 313 (5th Cir. 2024), 26 states brought suit to challenge the DOL's rule, and the Fifth Circuit remanded the suit to the U.S. District Court for the Northern District of Texas with instructions to consider the rule in light of Loper Bright. Thus, courts may open the door to class claims for breach of fiduciary duty by investment managers that prioritize environmental, social, and governance factors above profitability.
Defendants also are apt to use Loper Bright to challenge the FCC's interpretations of the TCPA. With its strict requirements and statutory damages, the TCPA is a frequent source of class claims. In a recent class certification decision involving claims for violation of the TCPA, in Mantha, et al. v. QuoteWizard.com, LLC, 347 F.R.D. 376 (D. Mass. 2024), the district court refused under Loper Bright to defer to the FCC's interpretation of "person" to mean "residential telephone subscriber." It instead found that the term "person" in the TCPA's private-right-of-action provision includes anyone whose number is listed on the national do-not-call registry regardless of who listed it. Id. 394 & n.17.
While the overruling of Chevron is likely to move the law back toward the statutory text in various areas, it is also likely to bring more uncertainty as courts disagree about statutory requirements. In Green, et al. v. Perry's Restaurants, Ltd., 2024 WL 4993356 (D. Colo. Dec. 5, 2024), for example, the U.S. District Court for the District of Colorado disagreed with the Fifth Circuit's decision in Restaurant Law Center and denied defendants' motion for partial summary judgment regarding the 80/20 rule. Unlike the Fifth Circuit, the court held that it was independently persuaded by the interpretation the DOL set forth in its 80/20 rule. Id. at *7. Thus, different courts interpreting the same ambiguous statutes may increasingly reach different results, leading to additional circuit splits and uncertainty.
In sum, this new doctrine of administrative law is already affecting FLSA, ERISA, and TCPA class actions, and has the potential to reshape other laws that provide the bases for class claims and defenses.
- Trio Of Arbitration Decisions
In 2024, the U.S. Supreme Court issued three decisions regarding arbitration under the Federal Arbitration Act, each of which has the potential to put more authority back in the hands of courts. The Supreme Court decided: (1) that district courts lack discretion to dismiss and, rather, must stay lawsuits pending the completion of arbitration, Smith v. Spizzirri, 601 U.S. 472 (2024); (2) that workers need not work for companies in the transportation industry to qualify for the FAA's transportation worker exemption, Bissonnette v. LePage Bakeries Park St., LLC, 601 U.S. 246 (2024); and (3) where parties have agreed to two contracts – one sending arbitrability disputes to arbitration, and the other sending arbitrability disputes to the courts – a court must decide which contract governs, Coinbase, Inc. v. Suski, 144 S. Ct. 1186 (2024).
In Smith v. Spizzirri, 601 U.S. 472 (2024), the Supreme Court issued a unanimous decision holding that, when a district court determines that a plaintiff's claims are arbitrable, the district court does not have discretion to dismiss the lawsuit. In this case, delivery drivers brought wage and hour claims against their former employer regarding their alleged misclassification as independent contractors. Although plaintiffs agreed that their claims were subject to arbitration, they opposed dismissal of their lawsuit and asked the district court to stay the case pending arbitration. Although the district court and the Ninth Circuit found dismissal consistent with the FAA, the U.S. Supreme Court disagreed. Interpreting § 3 of the FAA, which states that the court "shall on application of one of the parties stay the trial of the action until [the] arbitration" has concluded, the Supreme Court held that this statutory language "creates an obligation impervious to judicial discretion." Id. at 476. It also found that the structure and purpose of the FAA supports interpreting § 3 as mandating a stay rather than dismissal. Based on § 16, which allows for an automatic interlocutory appeal of an order denying a motion to compel arbitration but not for an order granting a motion to compel arbitration, the Supreme Court reasoned that Congress sought to avoid dismissal, which triggers the right to an immediate appeal, and instead intended to move arbitrable disputes out of courts and into arbitration as quickly and easily as possible. Id. at 5-6. Finally, the Supreme Court explained that stays are preferable because they allow federal courts to maintain jurisdiction to resolve disputes between the parties. Id.
In Bissonnette, et al. v. LePage Bakeries Park St., LLC, 601 U.S. 246 (2024), the Supreme Court issued another decision regarding the FAA's transportation worker exemption. The Court again cautioned that the exemption does not apply in "limitless terms" and, instead, applies only where workers play "a direct and necessary role in the free flow of goods across borders." Id. Section 1 of the FAA exempts from arbitration "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." The third category commonly is called the "transportation worker" exemption. Although the U.S. Supreme Court issued two decisions in 2022 – Southwest Airlines Co. v. Saxon, et al., 596 U.S. 450 (2022), and Domino's Pizza, LLC v. Carmona, et al., 143 S. Ct. 361 (2022) – construing the FAA's transportation worker exemption narrowly, many courts failed to heed that direction. As a result, in April 2024, the U.S. Supreme Court again weighed in on the issue in Bissonnette, et al. v. LePage Bakeries Park Street, LLC, 61 U.S. 246 (2024).
The defendant in Bissonnette produced baked goods in 19 states and distributed its products across the country. The plaintiff franchisees contracted with the defendant to distribute the products in local markets. The plaintiffs filed a putative class action, and the defendant moved to compel arbitration on an individual basis. The district court granted the motion, the Second Circuit affirmed, and the U.S. Supreme Court granted further review. As in Saxon, the U.S. Supreme Court emphasized in Bissonnette that the test for application of the transportation worker exemption focuses on the work performed by the plaintiff and not the employer's industry. Addressing the employer's argument that such a test would make virtually all workers who load or unload goods, such as pet shop employees and grocery store clerks, exempt transportation workers, the Supreme Court disagreed. It opined that the exemption has "never" been interpreted to apply in "such limitless terms." Id. at 256. The Supreme Court emphasized that, for the exemption to apply, the worker "must at least play a direct and necessary role in the free flow of goods across borders." Id. The Supreme Court thus vacated the order compelling arbitration and remanded for further proceedings.
Finally, on May 23, 2024, the U.S. Supreme Court issued its decision in Coinbase, Inc. v. Suski, et al., 144 S. Ct. 1186 (2024), holding that, where parties have agreed to two contracts – one sending disputes regarding arbitrability to arbitration, and the other sending disputes regarding arbitrability to the courts – a court (and not an arbitrator) must decide which contract governs. In connection with the sweepstakes offered by Coinbase, a cryptocurrency exchange platform, users filed a class action complaint alleging that the sweepstakes violated various California consumer protection statutes. Citing an arbitration clause in the User Agreement, Coinbase moved to compel arbitration on an individual basis. The arbitration clause in the User Agreement included a delegation clause that allocated decisions concerning whether disputes were arbitrable to the arbitrator. The users argued that the court, and not an arbitrator, should decide the arbitrability issue and, in support, cited a second contract – the Official Rules – they entered in connection with the sweepstakes. In contrast to the earlier executed User Agreement, the Official Rules contained a forum selection clause that required parties to decide all disputes related to the sweepstakes in California courts. The users argued that the Official Rules superseded the User Agreement and its arbitration and class action waiver provision. The district court denied Coinbase's motion to compel arbitration, and the Ninth Circuit affirmed.
The U.S. Supreme Court granted review to answer the question of who – a judge or an arbitrator – should decide whether a subsequent contract supersedes an earlier arbitration agreement that contains a delegation clause. The Supreme Court held that, where parties have agreed to two contracts – one sending arbitrability disputes to arbitration, and the other sending arbitrability disputes to the courts – a court must decide which contract governs. By contrast, in cases where only one contract is at issue, and that contract contains an arbitration clause with a delegation provision, courts must send all arbitrability disputes to arbitration, absent a successful challenge to the delegation clause. Thus, it was correct for the district court and the Ninth Circuit to have determined which contract governed the claims concerning the sweepstakes. Although Coinbase sought to challenge the Ninth Circuit's determination that the Official Rules superseded the User Agreement, the Supreme Court declined to consider that issue.
- Additional Decisions Impacting Class Actions
In 2024, the U.S. Supreme Court issued a number of additional rulings that have the potential to impact class actions, particularly in the areas of securities fraud, civil rights, and Title VII, and with respect to issues such as preemption and bankruptcy plan releases.
- Securities fraud. The Supreme Court clarified the standard for claims brought under the Exchange Act alleging pure omissions of fact in Macquarie Infrastructure Corp., v. Moab Partners, L.P., 144 S. Ct. 885 (2024). Under the Securities Act, a pure omission of fact is expressly prohibited if it makes a statement in the offering documents misleading. The Supreme Court held that pure omissions do not impose liability under the Exchange Act. The decision also resolved a split among the courts of appeal concerning a private right of action arising from an Item 303 statement issued pursuant to SEC Regulation S-K. The Supreme Court ruled that, half-truths, in which a defendant discloses some but not all material facts that render the statement misleading, can create liability for an Item 303 statement. However, pure omissions in an Item 303 statement do not create a private right of action.
- Civil rights. The U.S. Supreme Court issued an important civil rights ruling in City Of Grant Pass, Oregon v. Johnson, 144 S. Ct. 2202 (2024). The plaintiffs, two individuals experiencing homelessness, filed a class action alleging that a city's enforcement of ordinances banning camping on public property was unconstitutional under the Eighth Amendment. The Supreme Court determined that enforcing general public-camping laws does not violate the Eighth Amendment's cruel and unusual punishments clause, opining that this clause focuses on the nature of punishments, not the criminalization of certain behaviors. The Supreme Court also rejected arguments that the enforcement of these laws against individuals who are involuntarily homeless should be considered cruel and unusual and concluded that issues like homelessness and how to address them involve complex policy decisions best left to elected representatives, not federal courts.
- Preemption. In Cantero, et al. v. Bank Of America, N.A., 144 S. Ct. 1290 (2024), an alleged class of home buyers argued that the defendant failed to comply with New York law requiring national banks to pay interest on escrow accounts. The defendant argued that federal law preempted the New York law. The district court ruled in favor of the plaintiffs, and the Second Circuit reversed. The Supreme Court then vacated and remanded the Second Circuit's ruling. According to the Supreme Court, the Second Circuit applied "a categorical test that would preempt virtually all state laws that regulate national banks, at least other than generally applicable state laws such as contract or property laws." Id. at 1301. The Supreme Court remanded and instructed the Second Circuit to "make a practical assessment of the nature and degree of the interference caused by a state law" by comparing the state law's level of prevention or interference with national bank borrowers in this case with that found in other banking cases.
- Title VII. In Muldrow v. City Of St. Louis, Missouri, 601 U.S. 346 (2024), the Supreme Court held that an employee challenging a job transfer under Title VII must show that the transfer brought about some harm with respect to an identifiable term or condition of employment, but the harm need not be significant. Numerous courts already have cited this opinion in denying motions to dismiss class claims under Title VII, illustrating its immediate impact. See, e.g., Wilder v. Honeywell Fed. Mfg. & Techs., LLC, 2024 WL 4567290, at *6 (W.D. Mo. Oct. 24, 2024) (denying motion to dismiss employment class action in light of Muldrow); Doe v. Bozzuto Mgmt. Co., 2024 WL 3104550, at *6 (D.D.C. June 24, 2024) (same); Tribue v. Maryland, 2024 WL 4202444, at *10 (D. Md. Sept. 13, 2024) (same).
- Bankruptcy plan releases. The case of Harrington, United States Trustee, Region 2 v. Purdue Pharma L.P., 144 S. Ct. 2071 (2024), involved a challenge to Purdue's Chapter 11 bankruptcy plan and the broad release of liability for various parties, including the Sackler family, which owned the company. In 2019, Purdue Pharma filed for Chapter 11 bankruptcy protection as part of an effort to address the thousands of lawsuits filed against it by state and local governments, municipalities, and individuals, related to the opioid epidemic. Plaintiffs claimed that Purdue's aggressive marketing and distribution of OxyContin contributed to widespread opioid addiction and overdose deaths. As part of its bankruptcy proceedings, Purdue proposed a reorganization plan that involved restructuring the company and creating a public-benefit trust to handle its assets and liabilities. Purdue's proposed bankruptcy plan, however, also provided a release of liability to the Sackler family, the owners of Purdue. The U.S. government challenged the release as unfair to a number of alleged victims who brought a class action lawsuit and wanted to preserve a chance to seek damages from the Sacklers. The Supreme Court ruled that the Bankruptcy Code does not authorize a release or injunction as part of a Chapter 11 reorganization plan that seeks to discharge claims against a non-debtor, such as the Sacklers, without the consent of the affected claimants.
These rulings generally make it easier for plaintiffs to bring and maintain class claims in court. As a result, corporations are apt to see their impact in the class action space in 2025 and beyond.
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