Chicago Business Litigation Lawyer Blog

Class Members Don’t Need Identical Claims to Maintain a Class-Action Under the FLSA

June 15, 2011 | Peter S. Lubin and Patrick Austermuehle

Our lawyers are passionate about protecting the rights of workers and are constantly researching new wage and hour decisions rendered by the federal courts here in Illinois. Our Buffalo Grove overtime class-action attorneys recently discovered a case that impacts potential clients seeking to certify wage and hour class actions under the Federal Labor Standards Act (FLSA).

The Plaintiff in Russell v. Illinois Bell Telephone Co. worked at Defendant’s call center in Arlington Heights, Illinois for five years and was paid hourly wages, commissions, and bonuses. Plaintiff and the other purported class members all had scheduled shifts and lunch breaks, but allegedly were required to perform work tasks both before their shifts and during their lunch breaks. Plaintiffs were not paid for the work they performed pre-shift and during lunch breaks, and filed suit for their unpaid wages. The trial court then conditionally certified the class, and additional discovery commenced.

Through discovery, Plaintiffs learned that Defendant has a written policy that hourly employees must obtain permission from a supervisor before working overtime and any employee who works overtime must be compensated accordingly. Defendant’s Code of Business Conduct also explicitly states that “managers are prohibited from requiring nonexempt employees to work off the clock.” However, after deposing 24 individual Plaintiffs, the record showed that the majority of Plaintiffs had to spend time logging into their computer systems prior to the start of their shift because their supervisors had instructed them to be “open and available” at the start of their shift. To be “open and available,” Plaintiffs had to boot up their computers and get several applications up and running. This system start-up process took between three and twenty minutes to complete depending upon the individual computer.

In addition to the pre-shift issues, the record showed that Plaintiffs would often have to work a few minutes past the end of their shifts to finish handling calls already in progress. Because Defendant has a policy that any overtime worked in an amount less than eight minutes is not compensable and many of the post-shift calls are resolved in less than eight minutes after the end of their shift, Plaintiffs were not compensated for the overtime worked while finishing calls at the end of the day.

After more discovery and the deposition of thirty-nine individual Plaintiffs, Defendants moved to decertify the class based upon individual issues embedded in the case and the absence of a company-wide policy that violates the FLSA. The Court found that the class members shared enough of a factual and legal nexus that pursuing a class-action was proper through the use of subclasses where necessary. The Court went on to decertify the individual claims that did not fall into the enumerated subclasses of pre-shift overtime, post-shift overtime, and work performed while on lunch breaks. Finally, the Court stated that due to the large amount of discovery still to be performed, that they reserved the right to revisit the decertification issue should it become apparent that the case was unmanageable as a class-action.

Indiana District Court Certifies Class-Action Under FLSA for Untimely Overtime Payments

June 13, 2011 | Peter S. Lubin and Patrick Austermuehle

Filing a lawsuit requires some legwork up front, but overall is a relatively painless process. Getting a class-action lawsuit certified by a federal court, however, is neither easy nor straightforward. Lubin Austermuehle focuses on getting major wage and hour lawsuits certified as class-actions and getting them resolved. Our Buffalo Grove overtime attorneys unearthed a federal case from the Northern District of Indiana regarding class certification that is of interest to both our present and future wage claim clients.

The dispute in Powers v. Centennial Communications Corp. arises out of claims for unpaid overtime and overtime adjustments for sales commissions for work performed by Plaintiffs in their capacity as a sales representatives for Defendant. Additionally, Plaintiffs claim that when they were paid commission-based overtime, the timing of those payments also violated federal law. The named Plaintiff filed suit as a result, and she alleged violations of the Indiana Wage Payment Satute and the federal Fair Labor Standards Act (FLSA), and sought to certify a class-action on the federal claim under FLSA.

The District Court found that, in spite of the fact that she was not paid owed overtime wages, Plaintiff failed to make FLSA’s required initial showing that she and her putative class members were “victims of a common policy or plan” to do so. Finding fault with the fact that Plaintiff had only shown that one person (the named Plaintiff) had not been paid correctly, the Court declined to certify the class as to the unpaid overtime claim, as it would “have the effect of turning every individual violation of the FLSA into a bulky collective action.”
The Court then turned to the unpaid commissions-bassed overtime claim and determined that it could proceed to the opt-in stage because Defendant had systematically deferred the commission-based payments pursuant to its stated Sales Compensation Plan. Because the applicable statutes allow only for a limited delay in the payment of overtime adjustment payments and Defendant had repeatedly waited weeks to make the required payments after they were earned, the case could proceed as a class-action.

New York Times reports: “Truck Dealers Win $2 Billion in Ford Suit”

June 12, 2011 | Peter S. Lubin and Patrick Austermuehle

The New York Times reports that Ford truck dealers won a $2 billion class action judgment against Ford for failing to honor its dealership contracts to provide the same pricing for medium and heavy size trucks to all dealers.

The article states:

The ruling, by Judge Peter J. Corrigan, of the Cuyahoga County Common Pleas Court in Cleveland, said that Ford made the dealers pay a total of $800 million more than they should have for nearly 475,000 medium- and heavy-duty trucks, including tractor-trailers and bulldozers.

The damages include $1.2 billion in interest and were calculated based on the formula that was used by a jury in February to award $4.5 million to the lead plaintiff in the lawsuit, Westgate Ford in Youngstown, Ohio.

Judge Corrigan upheld the February ruling and added $6.7 million in interest to the jury’s award. “Ford’s breach of its obligation to sell Westgate trucks only at prices published to any dealer,” Judge Corrigan wrote in his ruling, shifted “any surplus in profit from Westgate to Ford.”

You can read the full article by clicking here.

NPR Reports “Courts Consider Blocking Massey Mine Merger”

June 11, 2011 | Peter S. Lubin and Patrick Austermuehle

NPR reports:

Courts in West Virginia and Delaware will consider preliminary injunctions Tuesday against Wednesday’s expected merger of coal mine giants Massey Energy and Alpha Natural Resources.

Massey owns the Upper Big Branch mine in West Virginia where 29 mine workers died in a massive explosion last year. The disaster figures heavily into the attempts to block the merger by large institutional investors.

“The mine explosion last year was not some bolt of lightning hitting a corporate factory where there’s really nobody to blame,” says Mark Lebovitch, an attorney representing the New Jersey Building Laborers Pension Fund and other institutional Massey shareholders with a lawsuit pending in Delaware.

“What you had with Massey was a board and a senior management team that over the course of years put profits above safety,” Lebovitch contends. “[They] really showed contempt for anyone on the outside warning them, saying ‘You are running this business in a way that is dangerous and you are going to harm people, kill people and, frankly, destroy corporate value.'”
Massey’s stock price plummeted after the April 2010 explosion, generating strong interest in a takeover from several rivals. The company owns deposits of metallurgical coal used for making steel. Met coal, as it’s called, is in great demand and is fetching high prices.

Some shareholders had so-called “derivative” lawsuits pending against Massey long before the Upper Big Branch explosion. They cited lax safety oversight and won a court-ordered settlement requiring specific “corporate governance enhancements” designed to improve safety and restore the company’s value.

But the Upper Big Branch explosion prompted those shareholders to seek a contempt of court citation against the company. Their case is in West Virginia courts.

In both cases, the shareholders say the Massey board and company executives agreed to a takeover by Alpha Natural Resources to shield them from liability in the lawsuits. Massey and its board would cease to exist after a merger and the lawsuits would presumably become moot.

Alpha could continue the lawsuits but it benefited from the diminished value created by Massey’s poor safety record and the Upper Big Branch explosion. Alpha has also announced that it will fold into its new management team several Massey executives, including Chief Operating Officer Chris Adkins.

Adkins will assist in the integration of Alpha’s safety program, called Running Right, across the merged companies.

That makes it unlikely that Alpha will continue the shareholder claims after the merger, says Badge Humphries, an attorney representing the California State Teachers Retirement System and other institutional shareholders in the West Virginia lawsuit.

Humphries says he finds it difficult to believe that Alpha will make “a claim against their new co-head of safety asserting that he’s responsible for the Upper Big Branch disaster. It’s just not going to happen,” he says.

Also moving to Alpha if the merger is approved is Shane Harvey, Massey’s general counsel. Harvey, Humphries says, was responsible for making sure Massey met the terms of the safety settlement.

The suing shareholders want preliminary injunctions to block a planned merger vote among all Massey and Alpha shareholders Wednesday morning.

“Trying to undo a merger after it is closed is a difficult task,” Humphries adds. “The courts have compared it to unscrambling an egg.”

The West Virginia Supreme Court of Appeals will also consider Tuesday a request from NPR and the Charleston Gazette to unseal documents in the case in that state, which include depositions from Massey and Alpha executives.

Humphries suggests the sealed documents show that Massey agreed to the sale so that its board of directors and executives would be free of liability in the lawsuits. He declined to provide details given a confidentiality agreement that made the depositions possible.

The sealed depositions include statements from Massey executives who declined to testify in the joint state and federal investigations into the cause of the Upper Big Branch explosion.

“Certainly the public [and] shareholders have a right to know what impact the Upper Big Branch tragedy has on this proposed merger,” says attorney Sean McGinley, who represents NPR and the Charleston Gazette in the case.

Davitt McAteer led an independent investigation of the Upper Big Branch explosion and noted in the group’s final report two weeks ago that the failure of the Massey executives to testify keeps the probe from being complete.

“The fact that they failed to provide testimony made it more difficult for us to understand the thinking that was going on prior to and during the course of the disaster,” McAteer says. “The opening of the sealed transcripts and sealed depositions will be helpful to us to try to understand…the actions of [Massey] management.”

Massey Energy did not respond to an NPR request for comment for this story but has said it operated its mines safely. The company also blames the Upper Big Branch explosion on a natural, unpredictable and unpreventable infusion of explosive natural or methane gas. McAteer contests that in his report.

Massey asked the West Virginia Supreme Court to keep documents sealed at least until 5 p.m. EST Tuesday. That would leave little time for review by Massey and Alpha shareholders before they’re scheduled to vote on the merger at 9:30 am EST Wednesday morning.

A spokesman for Alpha Natural Resources says the company will not comment “while the litigation is playing out.” But Alpha has said in court documents that it believes Massey shareholders are getting a good price in the takeover. The company also insists its board will consider continuing the shareholders lawsuits.

In a hearing in the Delaware case last week, Judge Leo Strine referred to Massey stockholders as “the least sympathetic characters” in the case.

“Any investor who invested in Massey…knew the managerial culture it was buying into,” Strine said. “And knew that you had people who believed that their way of doing it was better than the people charged with enforcing the law.”

Strine unsealed some documents in the case last week. He may issue a ruling Tuesday. West Virginia’s Supreme Court considers Tuesday the shareholders’ request for an injunction and the request by NPR and the Charleston Gazette to unseal court records.

Law 360 reports: “Pa. Appeals Court Upholds $187M Wal-Mart Judgment”

June 11, 2011 | Peter S. Lubin and Patrick Austermuehle

Law 360 reports that a Pennsylvania state appeals court has upheld a $187 million dollar class action judgment for unfair wage and hour practices. Wal-Mart allegedly forced its Pennsylvania employees to work off the clock and skip breaks for meals or rest. “The record reflects testimony and documentary evidence suggesting that because of pressure from the home office to reduce labor costs and the availability of significant bonuses for managers based on store profitability, Wal-Mart’s scheduling program created chronic understaffing, leading to widespread rest-break violations,” the court held in its 211 page opinion.The article states:

The original $78 million verdict was handed down Oct. 13, 2006, following a six-week trial. The jury found Wal-Mart liable for not paying employees for time spent working off the clock. That award was almost doubled in 2007 when the court added $62.2 million in liquidated damages for the class of more than 187,000 Pennsylvania workers. …
Lawyers in the case claimed that Wal-Mart made workers skip more than 33 million breaks and two million meal periods from 1998 to 2001.
In its appeal, Wal-Mart claimed, among other things, that the case should not have been certified as a class action and that it had not breached a contract with its employees because the company’s policies and its employee handbook did not establish a contract.

You can read the full article by clicking here.

CNN reports: “Florida Judge Allows Suits Against Chiquita to Move Forward”

June 5, 2011 | Peter S. Lubin and Patrick Austermuehle

CNN reports that a federal court has allowed a law suit to proceed against Chiquita for allegedly contributing to human rights abuses in Colombia by paying bribes to the right wing paramilitary groups that actually committed the atrocities. Chiquita which once operated 200 banana plantations in Columbia claimed that it was a victim of extortion and was forced to pay the bribes which it also paid to left wing rebels. Chiquita already plead guilty to federal criminal charges involving the same bribes and paid a $25 million fine.

The article states:

A federal judge in Florida said Friday that lawsuits against Chiquita Brands International, filed by family members of thousands of Colombians who were tortured or killed by paramilitaries, will be allowed to go forward.

Chiquita, which has admitted to making payments to paramilitaries, had asked for the suits to be dismissed, arguing it was a victim of extortion and has no responsibility for any crimes armed groups committed.

But U.S. District Judge Kenneth A. Marra denied the company’s request, allowing plaintiffs to move forward with claims for damages against the company for torture, war crimes and crimes against humanity. He granted Chiquita’s motion to dismiss claims for damages related to terrorism.

“While the court allowed some claims to move forward, it is important to understand that at this stage of the proceedings, the court is required by law to treat plaintiffs’ outrageous and false allegations as if they were true. Plaintiffs now have the burden of proving these allegations,” Chiquita spokesman Ed Loyd said in a statement.

You can read the full article by clicking here.

Northern District of Illinois Federal Court Denies Motion to Stay Shareholder Derivative Suit Under Abstention Doctrine

June 1, 2011 | Peter S. Lubin and Patrick Austermuehle

Many corporations are owned by a group of shareholders, but the business decisions are made by a Board of Directors. Shareholders trust that the board will make decisions that are in the best interests of the business, but when directors fail to do so, shareholders can bring a derivative lawsuit on behalf of the company itself. The Arlington Heights shareholder lawsuit attorneys at Lubin Austermuehle have been involved with many shareholder disputes, and our attorneys recently uncovered a decision in the field handed down by the Northern District of Illinois Federal District Court that we found quite interesting.

In Oakland County Employees Retirement System v. Massaro, the plaintiff shareholders brought a derivative action on behalf of nominal defendant Huron Consulting Group against Huron’s Board of Directors and executive officers. Plaintiffs brought the suit because they believed that Defendants overstated Huron’s revenue for years, which artificially inflated the value of Huron stock. Plaintiff brought suit for violations of the Securities Exchange Act, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. However, in addition to the suit brought by Oakland County Employees Retirement System in federal court, two separate state court actions were previously filed by other individual Huron shareholders. Because of these state court actions, the Defendants in Oakland County filed a motion to stay the federal proceedings pending the outcome of the lawsuits filed in state court. Defendants argued that the federal action should be stayed under the abstention doctrine because the state and federal lawsuits were parallel actions.

The Court stated that for the lawsuits to be deemed parallel, they must involve substantially the same parties and substantially the same issues. Upon evaluating the pleadings, the Court held that because Plaintiffs brought a federal claim under section 14(a) of the Securities and Exchange Act — and no such claim was included in either of the Illinois state litigations — the state and federal actions were not parallel. The Court thusly denied the motion to stay, and went on to state that even in the absence of the 14(a) claim, Defendants did not show that exceptional circumstances existed to justify the court abstaining from ruling in the case.

New York Times Reports That Nation’s Second Largest For Profit University is the Target of a Whistle Blower Suit for Allegedly Defrauding Government into Funding Student Loans

May 29, 2011 | Peter S. Lubin and Patrick Austermuehle

Questions Follow Leader of For-Profit Colleges
By TAMAR LEWIN
Published: May 26, 2011
A whistle-blower case charges that an education company encouraged aggressive recruitment of unqualified students for their federal student aid.

Our law firm is pursuing class actions and putative class actions against for profit vocational schools in the Chicago area. We have interviewed many students of for profit universities, colleges and vocational schools who believe that various for profit colleges and Universities have cheated them along with the government in getting the students to borrow money with government backed loans for essentially a worthless education.. We have been looking into whistle blower allegations similar to those reported in a recent New York Times article and are interested in speaking to employee/whistle blowers at for profit colleges, universities and vocational schools who know about similar frauds to that reported by the New York Times engaged in by other for profit colleges, universities and vocational schools.

The New York Times reports:

[T]he Justice Department and two state attorneys general are intervening in a whistle-blower lawsuit charging that EDMC also violated the ban on what is known as incentive compensation. That practice encourages aggressive recruitment of unqualified students for their federal student aid.

Given the cast of characters — … a half dozen former Phoenix executives are now at EDMC — the complaint against EDMC says that “senior management knows that the compensation system it administers violates the incentive compensation ban.”
This is the first time that prosecutors have joined a suit like the EDMC whistle-blower case, and the government’s unprecedented intervention in such a compensation case comes amid escalating controversy over for-profit colleges. Enrolling about 12 percent of the nation’s higher-education students, the colleges get a quarter of all federal student aid and account for nearly half of all student loan defaults. Last Friday, the Department of Education released new data showing that more than 15 percent of those who had attended for-profit colleges defaulted within two years — twice the rate of those who attended public institutions, and three times as many as those who went to private not-for-profit colleges.

You can view the full New York Times article by clicking here.

Settlement Agreements With Former Employees Containing Broad Release Language May Prevent Subsequent Qui Tam Actions

May 25, 2011 | Peter S. Lubin and Patrick Austermuehle

No matter what kind of business you own and operate, an unfortunate part of running a company is the inevitable employment disputes with employees. Whether it is an action over wages, job duties, or other issues, many business owners will find themselves in court opposite a current or former employee at some point. Lubin Austermuehle’s Naperville business attorneys know the legal challenges that business owners face, and are always mindful of new case law that affects our clients.

Enterprise Recovery Systems, Inc. v. Salmeron is a decision handed down by the Appellate Court of Illinois earlier this year regarding an employer/employee dispute filed in the circuit court of Cook County. Plaintiff Enterprise Recovery Systems hired Defendant Salmeron as general manager and director of operations for their recovery and resolution of delinquent student loans business. Defendant worked for Plaintiff for four years before being terminated, and she sued Plaintiff for sexual harassment. This case settled, and Defendant signed a broadly worded release containing language that discharged Plaintiff from any other claims arising out of Defendant’s employment with Plaintiff in exchange for $300,000. After this settlement, Defendant Salmeron filed a qui tam action against Plaintiff Enterprise on behalf of the federal government alleging that Enterprise had defrauded the government. The federal government declined to intervene in the qui tam action, and the lawsuit was eventually dismissed with prejudice due to the misconduct of Salmeron’s lawyer, according to the court. Because of issues brought to light in the qui tam action, Plaintiff filed suit against Defendant alleging fraud in the inducement and breach of Defendant’s duty of loyalty to Plaintiff. After the court found repeated misconduct by Defendant’s attorney (which included multiple violations of court orders), the trial court banned Defendant from presenting evidence in her defense of the fraud and breach of fiduciary duty action. Plaintiff then moved for summary judgment on both claims.

Plaintiff’s motion showed that Defendant produced company log reports in the qui tam suit and those reports were stolen from the Plaintiff. Furthermore, Plaintiff alleged that Defendant failed to alert Plaintiff about the supposed illegal conduct of Plaintiff’s employees prior to notifying the government and filing the qui tam lawsuit. Additionally, Plaintiffs contended that Defendant planned to file the qui tam action before signing the release that was a part of the sexual harassment suit settlement. Defendant failed to file a response to the motion for summary judgment, so the court granted the motion. Plaintiff appealed, and the matter was reviewed de novo by the Appellate Court.

The Appellate Court upheld the trial court’s grant of summary judgment as to the fraud in the inducement claim because the court found that Defendant knew she had information for the qui tam case against Plaintiff at the time she negotiated the sexual harassment claim’s settlement and release. Furthermore, the court found that Defendant waited until she had received her last settlement payment before filing the qui tam lawsuit and signed the settlement agreement with no intention of honoring it. The Court upheld summary judgment as to Plaintiff’s breach of the duty of loyalty cause of action because Defendant was a high-level member of Plaintiff’s management team and owed a duty of loyalty to the company. This duty was breached when Defendant sought to profit from information harmful to the company that was obtained through her position of trust within the company. The Court also explained that it was reasonable for Plaintiffs to expect Defendant to neither exploit her position for personal gain nor hinder the business operations of the company

Northern District of Illinois Grants Motion to Dismiss in Trade Secrets Case Due to Lack of Personal Jurisdiction

May 24, 2011 | Peter S. Lubin and Patrick Austermuehle

After hiring someone, businesses expect not only that their new employee will perform his job adequately, but also that he will do no harm to the company or its ability to do business. Employers know that their expectations are not always met by those employees, which is why the use of employment contracts with non-compete clauses are quite common these days. Our Chicago restrictive covenant attorneys just discovered a recent court decision that details a dispute between an employer and an ex-employee regarding one such employment agreement.

In Zep Inc. v. First Aid Corp., Plaintiff Zep employed the individual Defendants as sales representatives for its industrial cleaning products business pursuant to an employment agreement that contained non-disclosure, non-solicitation, and non-compete provisions. During their employment, Defendants had access to Plaintiff’s customer lists, supplier lists, pricing information, and other proprietary information. Eventually, a competitor, Defendant First Aid, hired the other named Defendants away from Plaintiff and subsequently solicited Plaintiffs clients and other employees.

As a result, Plaintiff filed suit for breach of contract, trade secret misappropriation under the Illinois Trade Secrets Act (ITSA), and tortious interference with contract. Plaintiff contends that First Aid induced the other Defendants to breach the employment agreements they signed with Plaintiff and that the other Defendants used and disclosed Plaintiffs trade secrets. In response, Defendants filed motions to dismiss the claims, which were granted as to three of the individual defendants due to a lack of personal jurisdiction. The Court found that because three of the individual Defendants were residents of Michigan and Ohio, Plaintiff is located in Georgia, and the employment agreements were signed outside of Illinois, they did not have the requisite minimum contacts to give an Illinois court jurisdiction over the matter. Furthermore, Plaintiff had not alleged that any of Defendants’ actions were aimed at Illinois, and neither had their actions caused harm to Plaintiff in Illinois, so specific personal jurisdiction was also improper. The Court denied the remaining motions to dismiss – finding that the non-compete provisions were enforceable because the geographic limitations were reasonable and the non-solicitation clause was limited in scope to Plaintiff’s competitors for a span of one year. Plaintiff’s allegations were also found to be sufficient to support a claim under the ITSA because it had identified a list of confidential information and trade secrets in its pleadings.