Welcome back to FisherBroyles’ newsletter “Worth Covering: News, Tips, and Thoughts for Professional Liability Carriers”! In this month’s issue, we discuss (i) the status of Title VII sex stereotyping discrimination claims in the Second Circuit; (ii) breaking EPL news with respect to transgender rights; (iii) determining ERISA Fiduciary status; (iv) the continued viability of the “Yates” Memo; and (v) another class action thwarted under the Supreme Court’s Spokeo decision.
Sex Stereotyping Discrimination Claims in the Second Circuit on Hold
In Lorber v. Lew, 2017 U.S. Dist. LEXIS 21189, *14-15 (S.D.N.Y. Feb. 13, 2017), plaintiff — an openly gay IRS employee — filed suit against the former Secretary of the Treasury alleging discrimination and retaliation in violation of Title VII based on his gender.
Among other things, plaintiff alleged that he had been passed over for promotions, excluded from meetings, and given poor performance reviews for discriminatory and retaliatory reasons. Although the Court granted the defendants’ motion to dismiss plaintiff’s hostile work environment claim, the court refused to dismiss plaintiff’s claim for discrimination under Title VII for nonconformity with male sex stereotypes.
Significantly, although plaintiff admitted (in response to the defendants’ motion to dismiss) that rulings from the Second Circuit Court of Appeals foreclose Title VII claims based exclusively on sexual orientation discrimination, the court in Lorber noted that “the Second Circuit has recently held oral argument in two cases that present the issue of whether Title VII protects against sexual orientation discrimination. See Zarda v. Altitude Express, No. 15-3775 (2d Cir. argued Jan. 5, 2017); Christiansen v. Omnicom Group, Inc., et al., No. 16-748 (2d Cir. argued Jan. 20, 2017).” Thus, the court stayed adjudication of the plaintiff’s sex stereotyping claim pending the Second Circuit’s rulings.
While timing may not be “everything,” it certainly can make a huge difference for the parties. In Lorber, plaintiff’s Title VII claim survived solely on the fact that the determinative legal issues are expected to be resolved shortly by the Second Circuit.
– Jonathan Evan Goldberg
“You can’t always get what you want…” — and, in Some Cases, You Can’t Get a Court to Declare that the Defendant is an ERISA Fiduciary
To avail themselves of the protections of the Employee Retirement Income Security Act (“ERISA”), plaintiffs must prove, as a threshold matter, that the defendant was a fiduciary. If plaintiffs are successful in meeting their burden, the fiduciary is subject to the mandates of ERISA, which requires it to perform certain duties (the highest duties known to law) vis-à-vis a pension plan’s participants and beneficiaries. Simultaneously, ERISA’s prohibited transaction provisions (describing what a fiduciary cannot do) are triggered.
Pursuant to ERISA, a fiduciary can be a named fiduciary by an employer sponsoring the plan. Alternatively, one can become a fiduciary simply by exercising (or having) any discretionary authority or control over a plan’s administration or assets. ERISA Section 3(21).
Recently, in Malone v. Teachers Ins. & Annuity Ass’n of Am., 2017 U.S. Dist. LEXIS 32308 (S.D.N.Y., Mar. 7, 2017), plaintiff asked the court to determine that defendant Teachers Insurance and Annuity Association of America (“TIAA”) was a fiduciary in its capacity as record keeper. On defendant’s motion to dismiss, the court found that TIAA was not a fiduciary.
Per the complaint in Malone, TIAA, as part of its investment services to the plan, had five-year annuity contracts which provided in part that the investment fees charged would offset any record keeping fees so long as the record keeper was TIAA (a practice known in the industry as “revenue sharing”). At the time these contracts were signed, this revenue sharing arrangement was not disclosed to the plan and, according to plaintiffs, this failure to disclose constituted a breach of fiduciary duty under ERISA. The primary issue for the Court was whether TIAA “exercised discretion” over the plan’s administration or assets thus making it a fiduciary. The Court ultimately rejected plaintiff’s arguments after considering the following facts:
- TIAA locked in the plan to a five-year contract;
- TIAA failed to disclose revenue sharing at signing of the contract;
- Plaintiff did not plead that the contracts were not negotiated at arm’s length;
- TIAA had no prior relationship with the plan;
- Fees paid from plan assets do not give the collector, in and of itself, fiduciary status;
- TIAA periodically collected fees; and
- TIAA adhered to a specific contract term.
Best practice Tips: Despite the ruling in Malone in favor of the Defendant, there is always a risk that one could be deemed a fiduciary. Thus, it is important to not get caught by surprise. One should review all relevant plan documents and outline every party involved in servicing the plan. Aside from named fiduciaries, determine at an early stage who has the critical “discretionary authority” in order to identify other fiduciaries and to ascertain if they are meeting their duties.
– Jose M. Jara
Yates is Out, Yates Memo is Not
As we have previously written, the 2015 directive, colloquially known as the “Yates Memo,” refocused the Department of Justice (“DOJ”) investigations and prosecutions on holding individual directors and officers criminally responsible for the misdeeds of a corporation, a dramatic departure from prior practices of levying huge fines on corporations, but leaving the individual directors or officers unscathed. The question naturally arises: will the new administration continue down this same path?
On January 30, 2017, President Trump fired acting Attorney General Sally Yates, an Obama appointee, after her directive to DOJ lawyers not to defend the new President’s Executive Orders. With Yates gone, will the memo that has shaken corporate America that bears her name go as well? Only time will tell what newly appointed Attorney General Jeff Sessions will do but, at present, all evidence indicates that the Yates Memo is here to stay.
During his confirmation hearing, in response to a question from Senator Mazie Hirono (D-Hawaii), Sessions stated that “[s]ometimes . . . the corporate officers who caused the problem should be subjected to more severe punishment than the stockholders of the company who didn’t know anything about it.” Then-nominee Sessions’ answer indicates a clear agreement with the philosophy behind the Yates Memo. Indeed, Sally Yates herself stated on November 30, 2016, in her first post-election speech, that “individual accountability isn’t a democratic principle or a republican principal, but is instead a core value of our criminal justice system that perseveres regardless of which party is in power.”
It is also consistent with Jeff Sessions’ history, both as a prosecutor and as a member of the Senate Judiciary Committee. While widely recognized as a conservative friend to big business, his strict adherence to law and order could spell disaster for businesses and businessmen who step over the line. As a federal prosecutor, he went after bankers related to the 1980’s savings and loan crisis and has been quoted as saying that the bankers he went after “lost everything they had.”
As a senator, Sessions has been known to compare white-collar offenders to drug dealers and can be expected to push for more indictments and prison sentences for directors and officers. During the 2010 confirmation hearing for James Cole, who Obama had nominated as Deputy Attorney General, Sessions questioned Cole on the philosophy of declining charges where there were concerns that it would lead to bankruptcy and hurt employees and shareholders. Sessions rejected these external considerations and opined that, “…if they violated a law, you charge them. If they didn’t violate the law, you don’t charge them.”
Further, in a 2007 hearing on DOJ methods of pressuring corporations to waive attorney-client privilege — which would necessarily expose the directors and officers to a substantially higher risk of jail time — Sessions stated that corporate crime “is not easy to prosecute or investigate. They have the best lawyers that you can find, and they utilize all the legitimate tools that they have, and you have to be strong… a prosecutor cannot be a weak-kneed person going up against a major corporation in a fraud case.”
With the anticipated continuation and perhaps strengthening of the provisions of the Yates Memo, it is more important than ever to make sure that the directors and officers are also protected by the best lawyers who will not be “weak-kneed” when going up against the Department of Justice. – Tim Parlatore
Spokeo Strikes Again: Class Action by NBA2K15 Players against Take Two Software Dismissed
Recently, in Ricardo Vigil, et al. v. Take-Two Interactive Software, Inc., 2017 U.S. Dist. LEXIS 12295 (S.D.N.Y. Jan. 2017), the U.S. District Court for the Southern District of New York dismissed plaintiff’s putative class action under the Illinois Biometric Information Privacy Act, 740 Ill. Comp. Stat. 14/1 et seq. (“BIPA”) against Take-Two Interactive Software, Inc. (“Take-Two”). The Southern District turned away the putative class action for lack of standing and for failure to allege sufficient actual harm under Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 194 L. Ed. 2d 635 (2016), a decision that is fast becoming one of the most important decisions in recent history in reducing the amount of harassing class-action litigation based on spurious and ill-founded allegations of harm under regulatory statutes. As the Supreme Court said in Spokeo, “Congress’ role in identifying and elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right. Article III standing requires a concrete injury even in the context of a statutory violation.” Accordingly, courts are striking down causes of action which do not allege sufficient harm.
In the Take-Two case, plaintiff siblings claimed that Take-Two illegally used their face scans (which plaintiffs used to create personalized virtual basketball players for in-game play in Take-Two’s online game NBA2K15) in violation of the Illinois BIPA. Specifically, they alleged a violation of BIPA when Take-Two indefinitely stored the biometric information it collects through the face scans on its servers, and when Take-Two transmitted unencrypted biometric information through the “open commercial internet.” Plaintiffs also alleged that Take-Two had failed to provide them with proper notice in writing that their scans would be collected and failed to explain the purposes and length of time of the data collection. Finally, the plaintiffs alleged that Take-Two failed to safely transmit their biometric data in accordance with the BIPA’s provisions.
In a 51-page decision, the Court carefully parsed through the various “technical violations” of the BIPA alleged by plaintiffs. Citing to Spokeo and Strubel v. Comenity Bank, 842 F.3d 181, 2016 WL 6892197 (2d Cir. 2016), the Court found that “[t]he purported violations of the BIPA are, at best, marginal, and the plaintiffs lack standing to pursue their claims for the alleged bare procedural violations of the BIPA.” Furthermore, the Court found that “the actual notice and consent in this case, and that purportedly required by the BIPA, does not rise to more than a procedural violation, which is plainly insufficient for standing under Spokeo and Strubel.” Accordingly, the court concluded that the plaintiffs had failed to allege an injury that could support a cause of action under BIPA and dismissed the action with prejudice for lack of standing and for failure to state a claim. The Court found it unnecessary to reach plaintiffs’ alternative class action allegations and the Plaintiffs have appealed.
Practice Tip: In addition to the already stringent requirements of Rule 23 of the Federal Rules of Civil Procedure, the Spokeo decision is proving to be another major obstacle to plaintiffs’ class action lawyers and should be made part of the defense lawyer’s arsenal when such putative claims are filed. – Chris Pey
FisherBroyles, LLP – Cloud-based. Not Virtual™
Founded in 2002, FisherBroyles, LLP was the first in the U.S., and now the largest full-service, cloud-based law firm in the world. The Next Generation Law Firm has grown to more than 165 attorneys in 20 offices nationwide. The FisherBroyles’ Law Firm 2.0® model leverages technology to offer a cost effective solution without sacrificing Big Law quality by eliminating overhead that does not add value to clients. Visit our website at www.fisherbroyles.legal to learn more about our firm’s unique approach and how we can best meet your needs.
These materials have been prepared for informational purposes only, are not legal advice, and under rules applicable to the professional conduct of attorneys in various jurisdictions may be considered advertising materials. This information is not intended to create an attorney client or similar relationship. Whether you need legal services and which lawyer you select are important decisions that should not be based on these materials alone.
© 2017 FisherBroyles LLP
Jonathan Evan Goldberg
Jose M. Jara