Monthly Archives: May 2014

Recent Filings – May Digest

View Susan Huber's Complete Bio at RBH.comNot every class action court filing in North and South Carolina becomes a full-length post on our blog. Here is a recap of May’s filings:

Harding v. The Pantry, Inc., No. 2:14-cv-02096 (May 30, 2014) (alleging violation of the Fair Labor Standards Act for wrongly classifying store managers as exempt and failing to pay overtime wages).  The case was originally filed in the Charleston County Court of Common Pleas on April 25, 2014.

Fitzhenry v. Lowe’s Cos., No. 2:14-cv-02081 (May 29, 2014) (alleging violation of the Telephone Consumer Protection Act by Lowe’s and GE Capital Retail Bank).  A motion to certify the class has also been filed.

Fitzhenry v. Fifth Third Bank, No. 2:14-cv-02076 (May 28, 2014) (alleging violation of the Telephone Consumer Protection Act after the 2013 settlement of a related action in Illinois, Hanley v. Fifth Third Bank, No. 1:12-cv-01612 (Mar. 6, 2012)). A motion to certify the class has also been filed.

Whitaker v. Goodman Global, Inc., No. 5:14-cv-00302 (E.D.N.C. May 28, 2014) (removal from Harnett County of North Carolina statewide class action alleging defective evaporator coils in Goodman and Amana air conditioning units, original complaint filed April 22, 2014).

Higgins v. PowerSecure Int’l, Inc., No. 3:14-cv-00271 (W.D.N.C. May 27, 2014) (another federal securities class action alleging fraud after PowerSecure’s share price dropped). The plaintiff filed a motion to transfer to the U.S. District Court for the Eastern District of North Carolina the next day. If the motion is granted, this case will join a substantially similar case, Ash v. PowerSecure Int’l, Inc., No. 4:14-cv-00092 (E.D.N.C. May 22, 2014) (more information below), in that court.

Ash et al. v. Power Secure International, Inc., No. 4:14-cv-00092 (E.D.N.C. May 22, 2014) (federal securities class action alleging securities fraud following drop in share price alleged to be 62%) (Dever, J.).

Wegner v. Pella Corp., No. 2:14-cv-01993 (D.S.C. May 20, 2014 ) (Iowa action, originally filed March 17, 2014, brought pursuant to CAFA alleging defective windows transferred to Multidistrict Litigation No. 2514 assigned to Judge Norton). This case joins Knight v. Pella Corp., No. 2:14-cv-01540 (D.S.C. Apr. 19, 2014) (more information below) and ten other member cases as part of the MDL.

Nakatsukasa v. Furiex Pharmaceuticals, Inc. (Wake County, May 12, 2014) (Action brought by public shareholders of Furiex Pharmaceuticals to enjoin acquisition of Furiex by Forest Laboratories, Inc. Complaint challenges “no solicitation” “fiduciary out” provisions, as well as break-up fee of $41 million)

Simmer v. Pokertek, et al., No. 14-cvs-8300 (Meck. County, May 9, 2014) —  A shareholder of PokerTek, Inc. filed a putative class action challenging a proposed merger with Multimedia Games Holding Company, Inc. The complaint alleges that the purchase will be “at an unfairly low price” and challenges the break-up fee and “no shop” provision.

Johnson v. Bennett Law, No. 2:14-cv-01936 (D.S.C. May 14, 2014) (transferring putative nationwide class action alleging violations of the Telephone Consumer Protection Act from the Southern District of California to the District of South Carolina). In her amended complaint, Plaintiff Angela Johnson, a South Carolina resident, alleges that she received unsolicited calls to her South Carolina cell phone after her husband, also a South Carolina resident, provided his South Carolina cell phone number in connection with work performed on his South Carolina home. None of the defendants reside in the Southern District of California, and the Court found unpersuasive Plaintiff’s argument that other putative class members may be located in or have received unsolicited calls in the Southern District of California, because “determination of proper venue is generally based on the named plaintiff, not unnamed or absent putative class members.” The lawsuit was filed on December 21, 2012.

Johnson v. Amazon.com DEDC, LLC, No. 3:14-cv-01797 (D.S.C. May 2, 2014) (warehouse workers at Amazon’s South Carolina fulfillment centers in West Columbia and Spartanburg allege unpaid overtime in violation of the Fair Labor Standards Act).

Schussel v. Lincoln Wood Products, Inc., No. 2:14-cv-01788 (D.S.C. May 2, 2014) (defendant removed and answered class action complaint originally filed March 11 in Charleston County alleging negligence and breach of warranty for defective residential window frames).

You can view a current list of recent filings here.

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Local lawsuit mirrors FLSA class action appeal to be decided by the U.S. Supreme Court

View Susan Huber's Complete Bio at RBH.comIn Johnson v. Amazon.com dedc, LLC, No. 3:14-cv-01797 (D.S.C. May 2, 2014), seven South Carolina Amazon warehouse workers sued Amazon on behalf of themselves and similarly situated employees alleging unpaid overtime in violation of the Fair Labor Standards Act (“FLSA”) at Amazon’s fulfillment centers in West Columbia and Spartanburg. Plaintiffs allege that they should be compensated for time spent going through “intensive and time-consuming security screening” to enter and exit the fulfillment centers (Compl. ¶35) and for similar security procedures at the start and end of meal breaks. Such security procedures include scanning employee ID badges, passing through security screenings and metal detectors, walking long distances to and from time clocks, and waiting in line to clock in. The complaint estimates that off-the-clock security procedures took 5 minutes and uncompensated travel time inside the building around meal times took approximately 6-7 minutes in each direction. Those small increments of unpaid time could quickly add up with the alleged “hundreds (and, possibly thousands)” of similarly situated South Carolina Amazon fulfillment center employees (Compl. ¶27).

Sound familiar? Amazon is no stranger to FLSA class action claims from its warehouse workers alleging unpaid overtime due to its long lines at security checkpoints. The Supreme Court recently granted certiorari in Integrity Staffing Solutions, Inc. v. Busk to answer the question of whether time spent in security screenings at Amazon warehouses in Nevada is compensable under the FLSA. In the decision below, the Ninth Circuit found such time to be compensable under the FLSA, see Busk v. Integrity Staffing Solutions, Inc., No. 11-16892 (9th Cir. Apr. 12, 2013), but the Second and Eleventh Circuits have reached the opposite conclusion in similar cases. See Gorman v. Consolidated Edison Corp., 488 F.3d 586, 593-94 (2d Cir. 2007) (time spent completing security procedures for nuclear power plant employees not compensable); Bonilla v. Baker Concrete Construction, 487 F.3d 1340 (11th Cir. 2007) (time spent completing security procedures for Miami International Airport employees not compensable). Under the Portal-to-Portal Act, 29 U.S.C. § 251, preliminary and postliminary activities, such as the security screenings at issue in Amazon’s fulfillment centers, are compensable under the FLSA if they are “integral and indispensable” to the principal activity that the employee is employed to perform. Are security procedures at the world’s largest online retail seller of goods “integral and indispensable” to the warehouse workers’ jobs? The Supreme Court will ultimately decide. (In all likelihood, the District Court for the District of South Carolina will stay proceedings in Johnson pending the Supreme Court’s ruling.)

With tens of thousands of employees and fulfillment centers in 14 states, the impact on Amazon is undeniable. But the impact of the Supreme Court’s decision will be felt by countless other employers with time clocks located inside secure facilities. To minimize exposure to FLSA claims, and collective action FLSA claims in particular, employers should pay close attention to the tasks performed directly before or after a shift or meal break – things like security checkpoints, travel, donning and doffing, and time spent waiting or on call. This first phase of the collective certification process in an FLSA action has a relatively low bar, and the threat of double damages under the FLSA makes these cases worth employers’ attention.

Integrity Staffing Solution’s brief on the merits is currently due May 28, 2014. Amazon will need to respond to the Johnson complaint shortly thereafter. We’ll keep an eye on both cases.

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Notice of Removal: Short and Plain Statement or Proof of Jurisdictional Facts Required?

View Sinéad O’Doherty’s Complete Bio at RBH.comTo remove a case to federal court, a defendant must file a notice of removal “containing a short and plain statement of the grounds for removal, together with a copy of all process, pleadings, and orders served upon such defendant or defendants,” 28 U.S.C. § 1446(a). This seems like a fairly straightforward proposition, but as the petitioners in Dart Cherokee Basin Operating Co., LLC v. Owens learned, appearances can be deceiving.

In December 2012, Dart Cherokee and its codefendant attempted to remove a putative class action to federal court under the provisions of the Class Action Fairness Act (the “CAFA”). The underlying lawsuit asserted underpayment of royalties on gas produced from wells in which Dart Cherokee had a working interest and sought to define the class as essentially all royalty owners who were paid royalties from these wells between January 1, 2002, and the date of a class notice. In the timely filed notice of removal (the “Notice”), Dart Cherokee explained that (i) Owens and the defendants were diverse (satisfying the minimal diversity requirement); (ii) there were more than 400 royalty owners for the 700 wells involved in the matter (satisfying the numerosity requirement); and (iii) based upon its calculations, the amount of additional royalties that would be due under the putative class claims was at least $8.2 million (satisfying the $5 million amount in controversy requirement). See 28 U.S.C. §1332(d). Although Owens did not dispute the veracity of these jurisdictional allegations, he sought to remand the case to state court on the grounds that Dart Cherokee had failed to prove by admissible evidence in its Notice that the amount in controversy had been met. In opposing the motion to remand, Dart Cherokee provided an affidavit — complete with spreadsheet exhibits — explaining how the damages figure was calculated. (In this affidavit, Dart Cherokee also noted that in the parties’ post-removal mediation, Owens’ damages calculation exceeded $14 million.)

Motivated in part by “the strong presumption against removal,” the district court granted the motion to remand, effectively concluding that a defendant must submit its evidence of jurisdictional facts with its notice of removal. Owens v. Dart Cherokee Basin Operating Co. LLC, No. 12-cv-4157, slip op. at 12 (D. Kan. May 21, 2013). A divided Tenth Circuit declined to hear its appeal of the remand order, so Dart Cherokee sought a writ of certiorari from the Supreme Court. Last month, the Supreme Court granted Dart Cherokee’s petition, taking up the question of “[w]hether a defendant seeking removal to federal court is required to include evidence supporting federal jurisdiction in the notice of removal, or is alleging the required ‘short and plain statement of the grounds for removal’ enough[.]” Perhaps in answering this question, the Supreme Court will provide insights into the appropriate balance between the traditional “strong presumption against removal” and the more federal-court-friendly CAFA. Moreover, given the generality of the question presented, the Supreme Court’s resolution of this matter is likely to have implications outside the class action context. In any event, it’s worth staying tuned for further developments in this case.

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Do Investors Benefit from Securities Fraud Class Actions?

View Heyward Bouknight’s Complete Bio at RBH.comA recent study from the U.S. Chamber Institute for Legal Reform (ILR) answers this question with a resounding NO. The ILR study joins mounting academic criticism of the claim by plaintiffs’ attorneys that securities fraud class action lawsuits benefit shareholders by winning billions of dollars in settlements.

First, the ILR study “conservatively” estimates that during an eighteen-year time span, the filing of securities fraud class action lawsuits caused shareholder value to drop by more than $701 billion compared to only $109 billion in aggregate settlement recovery. Put another way, shareholders lost more than six times the settlement amount actually received from the filing of a securities fraud class action.

This $701 billion in lost shareholder value purports to capture the wealth loss experienced by shareholders from the stock price drop after the filing of the lawsuit. Because this $701-billion loss does not account for any stock price drop attributed to the anticipation of a filing of a lawsuit, the study believes the number is a conservative estimate of the wealth loss experienced by shareholders. Further, the $109 billion in expected settlement recovery does not account for the plaintiffs’ attorneys’ fees paid from these funds, which the study estimates will average 18%.

Second, the study also found that when settlements are paid in securities fraud class action lawsuits, the proceeds are not properly allocated to the shareholders who would be legally entitled to damages if the case were fully litigated. The study determined that the largest beneficiaries of class settlements had traded the stock hundreds of times during the class period. The study reviewed the plans of allocation for the 50 largest settlements in its sample and found that all 50 plans failed to net the respective plaintiff’s gains from selling at allegedly inflated prices against the plaintiff’s losses. Put another way, all 50 plans of allocation failed to properly calculate the net harm suffered by each plaintiff and provided many plaintiffs with a disproportionate gain. Further, this frequent trading of the stock indicates that these shareholders were not relying on the integrity of the market price, which is the central underpinning of the fraud-on-the-market theory used to prove reliance in securities fraud class actions, and should not be legally entitled to any damages if the case were fully litigated.

The overall conclusion of the ILR study was that “private securities class actions significantly harm investors and the economy, and they do not provide an efficient mechanism to compensate victims of alleged wrongdoing.”

Of course, the entire structure of securities fraud class actions could change when the United State Supreme Court issues its opinion in Halliburton Co. v. Erica P. John Fund, Inc., the subject of a recent post in this blog. Stay tuned.

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Supreme Court to Review Fraud on the Market Presumption

View David Wright's Complete Bio at RBH.comIt is difficult to understate the effect on class actions of Basic Inc. v. Levinson, 485 U.S. 224 (1988), which the Supreme Court decided in 1988. It is virtually impossible to demonstrate “reliance” – a key element of most securities’ fraud claims – on a class-wide basis. Indeed, if reliance is a part of the substantive proof required for the class claims, that usually presents a ticket for dismissal of those claims and a denial of class certification. But in Basic, the Supreme Court bridged that gap, reasoning that the stock market was “efficient,” and therefore would reflect information about any security. Ergo, it reasoned, reliance should be “presumed” when public markets are implicated. So, for 25 years, securities lawyers have dealt with the “fraud-on-the-market” presumption.

In Halliburton Co. v. Erica P. John Fund, Inc., the Supreme Court granted cert to reexamine that issue (Halliburton got sued when its stock price plummeted after a disclosure relating to asbestos reserves). On March 5, the court held oral argument in the case. Halliburton’s counsel pulled no punches, arguing at the outset that “Basic’s judicially created presumption preserves an unjustified exemption from Rule 23 that benefits only securities plaintiffs.” And Justice Scalia made clear his view about the outcome-determinative nature of class proceedings: “Once you get the class certified, the case is over, right?” Hard to read the tea leaves on this one, but a majority of the court seems to favor at least requiring “event studies” at the class certification stage, which should make class certification more difficult and expensive for securities’ plaintiffs.

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