Defense Litigation Insider

Helping you navigate a clear path through complex litigation.

Tinder No Match for CA’s Second District Court of Appeal in Allegedly Ageist Pricing Case

Posted in California Courts, Class Action Litigation, Litigation Trends

A California appellate court recently ruled that Tinder’s age-based pricing strategy violated the state’s Unruh Civil Rights Act, which broadly outlaws discrimination based on sex, race, sexual orientation, age, and other classes. California’s Second District Court of Appeal in Los Angeles reversed the trial court’s dismissal of a class action brought by a putative group of customers over 30 years of age, who claim Tinder improperly charged them more for a premium service than it did users in the 18-29 age range.

This case, which has drawn a great deal of publicity, may appear to signal the beginning of a judicial push against age-based price differences, but the implications outside California are likely limited.

 

In March 2015, the free dating service switched to a “freemium” pricing model. Users could still join Tinder without cost, but for a fee, they could upgrade their membership to Tinder Plus and receive additional features, including the ability to undo mistaken swipes or expand their geographic filter for potential matches. For this membership upgrade, users over 30 paid a $20 subscription fee, while users under 30 paid only $14.99 (or $9.99, depending on any promotions in effect).

 

Tinder claimed that before setting the price, it conducted market research that showed that users under 30 were more likely to be “budget constrained” and were less likely to pay an increased fee. The named plaintiffs (one of whom previously sued a women-only networking event to allow the inclusion of men) argued that this stated basis failed to justify what amounted to a surcharge on older customers, some of whom might actually have had less disposable cash than younger users.

 

The court found that, under the Unruh Civil Rights Act, Tinder’s stated basis failed to justify what amounted to age discrimination. The court acknowledged that while this practice might make business sense, it violated the spirit of California’s law, which treats people equally unless the legislature provides an explicit basis to do otherwise (as it has for discounts for elderly persons and minor children). The court found no such legislative basis for young adults generally.

 

Many other products lend themselves well to different pricing tiers like the one challenged in the Tinder case: software licenses, content subscriptions, club memberships, etc. This scrutiny of Tinder’s pricing suggests that potential plaintiffs may scrutinize any pricing benefitting a non-elderly or minor age group. However, because the age-based claim that will now proceed in California is cutting-edge and largely untested, the full impact of this ruling remains to be seen. In several states (California, Maryland, Pennsylvania, and Wisconsin), courts have found that ladies’ nights violate state discrimination laws, but have not clearly addressed age-based pricing in a similar context.  Regardless, the case law in California and elsewhere will continue to develop. For example, it remains an open question whether student discounts would pass the Appeal Court’s “legislative-findings” standard as applied in the Tinder case.

 

 

Massachusetts Focuses on the Elements of Spoliation

Posted in Food & Beverage Litigation, Litigation Trends, Massachusetts Courts

In Santiago[1] v. Rich Products Corp., et al.[2], the Massachusetts Appeals Court held that a finding of spoliation requires both: (1) the negligent and intentional loss or destruction of evidence; and (2) the awareness of the spoliator at the time the evidence is lost or destroyed of the potential for the evidence to help resolve the dispute. The Santiago Court’s strict interpretation of the doctrine of spoliation follows the trend of Massachusetts litigation, shifting focus from the first element, the spoliator’s conduct to the second element, its mental state. The opinion also accentuates the fact that non-compliance with a document retention policy does not equate to per se spoliation.

 

The underlying dispute arose in 2006, when the plaintiff, Kelvin Santiago, then a 7-year-old first grader at Lowell public schools, experienced traumatic brain damage after choking on meatballs that were served to him during school lunch. The plaintiffs (Kelvin Santiago and his parents) sued the city of Lowell and the entity that produced and sold the meatballs, Rich Products, asserting negligence, breach of the implied warranty of merchantability, and Chapter 93A consumer protection claims, amongst others. Id. at 2. By way of background, in 2004, as part of the Federal government’s initiative to provide healthy lunches to students through the National School Lunch Program, Rich Products began providing and producing meatballs that met the healthy-lunch specification guidelines. To comply with standards promulgated by the United States Department of Agriculture, Rich Products used Profam 974, a soy protein isolate, to achieve the requisite “two ounces of protein per student [per lunch].” Santiago, No. 16-P-504 at 3. The plaintiffs’ counsel argued that the inclusion of Profam 974 rendered the product unreasonably dangerous, because the soy protein produced a meatball whose texture made it a choking hazard. Id. at 6

 

Upon enduring substantial discovery and motion hearings, in 2014, the Superior Court awarded the city of Lowell summary judgment, and a jury found that Rich Products was not responsible, on the basis that its negligence was not a “substantial contributing factor to the plaintiffs’ injuries.” Id. at 2-3. On appeal, the plaintiffs argued that the trial court erred by, among other things, denying the plaintiffs’ request for an adverse-inference instruction regarding Rich Products’ alleged spoliation of evidence. Id. On December 28, 2017, the Appeals Court “conclude[d] that the trial judge did not abuse his discretion in declining to give a spoliation instruction because the plaintiffs failed to establish the necessary factual predicate that Rich Products lost or destroyed the missing evidence when it knew or should have known of a potential lawsuit.” Id. (emphasis added).

 

Spoliation is the destruction of evidence, negligently or intentionally, when the litigant is aware or should be reasonably aware that the evidence is relevant to a potential action, whether or not the action has officially commenced. Id. at 7 (citing Mass. G. Evid. § 1102 (2017)). “The doctrine does not extend to a fault-free destruction or loss of physical evidence;’” however, the purpose of the doctrine is to force accountability of a “party who culpably destroys evidence,” while providing a remedy to the other party “where unfair prejudice results.” Santiago, No. 16-P-504 at 7 (quoting Scott v. Garfield, 454 Mass. 790, 798 (Mass. 2009)); Keene v. Brigham and Women’s Hosp., Inc., 439 Mass. 223, 234 (Mass. 2003)(quoting Kippenhan v. Chaulk Servs., Inc. 428 Mass. 124, 127 (Mass. 1998)); Mass. G. Evid. § 1102 (2017). The court applies the reasonable person standard to determine whether the loss of evidence constitutes spoliation, by asking “at the time of spoliation, [did the party realize] the possible importance of the evidence to the resolution of the potential dispute?” Santiago, No. 16-P-504 at 7 (citing Kippenhan at 127)(emphasis added). The party seeking sanctions has the burden of proving that the spoliating party had the requisite knowledge by “producing evidence sufficient to establish certain preliminary facts.” Id. at 7 (citing Scott at 799). Should the sanction seeking party provide enough evidence to determine spoliation has occurred, a judge has a myriad of options to remedy the situation, so long as the sanction addresses, “the precise unfairness that would otherwise result” in the least severe way necessary. Santiago, No. 16-P-504 at 9 (citing Westover v. Leiserv, Inc., 64 Mass. App. Ct. 109, 113 (Mass. App. Ct. 2005) (quoting Fletcher v. Dorchester Mut. Ins. Co., 437 Mass. 544, 550 (Mass. 2002))); Santiago, No. 16-P-504 at 9 (quoting Keene 439 Mass. at 235).

 

Regarding the allegations at issue, the plaintiffs’ counsel claimed that Rich Products engaged in sanctionable conduct with respect to their “(1) laboratory notebooks and production records from 2004 relating to the development of the formula for the meatballs and (2) the results of product-development and production testing from 2004.” Santiago, No. 16-P-504 at 5. The plaintiffs’ counsel said that this evidence would highlight to the jury the unreasonably dangerous texture that Profam 974 created within the meatballs. Id. at 6. The plaintiffs, however, were able to recreate meatballs using Rich Products’ recipe provided in answers to interrogatories, and obtained expert testimony that identified those meatballs as unreasonably dangerous, and opined that “both the size and texture of the meatball presented a choking risk to children.” Id. at 6. Moreover, while articulating the alleged dangers of the product, the plaintiffs’ counsel neglected to identify whether or not Rich Products “at the time of spoliation” knew or should have reasonably known “the potential importance of the evidence to the resolution of the potential dispute.” Id. at 7. Judge Shin reinforced the Superior Court’s position that simply pointing to a document retention policy does not equate to a culpable or negligent destruction of documents with knowledge that the documents could solve a potential dispute. Id. at 6. Because the plaintiffs’ counsel ultimately could not bear this burden of proving intentional or negligent acts with knowledge as to their significance, there was no actionable spoliation. Id. at 8 (citing Vigorito v. Ciulla Builders, Inc., 57 Mass. App. Ct. 446, 454-455 (Mass. App. Ct. 2003)). Nevertheless, the Superior Court Judge acted within his discretion to allow the plaintiffs’ counsel to “argue [] the lack of evidence,” which “allow[ed] [the plaintiff] to make use of the fact the documents were missing,” ultimately painting the picture for the jury at each juncture of the trial. Santiago, No. 16-P-504 at 8, 11.

 

Thus, the standard that Massachusetts courts demand for proving spoliation requires a showing of knowing action, or failure to act, before the court will punish a party for failing to preserve evidence. At the same time, if critical pieces of evidence are missing, Massachusetts have the authority to allow counsel an opportunity to present this point to the jury without the imposition of sanctions such as an adverse inference instruction.  Id. at 11

[1] Kelvin Santiago & Julia Rivera and Juan Santiago, individually and as next friends of Kelvin Santiago

[2] Kelvin Santiago & Others v. Rich Products Corp., Casa Di Bertacchi Corp., and the city of Lowell, No. 16-P-504 (Mass. App. Ct. Dec. 28, 2017)

 

 

Death, Taxes, and Sexual Harassment: How the #MeToo Movement Affected Trump’s Tax Bill

Posted in Corporate Litigation, Employment Litigation, Litigation Trends, Uncategorized

On December 22, 2017 President Trump signed into law the Tax Cuts and Jobs Act (officially Public Law no. 115-97, named “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”). Recognized generally for changes to the individual income tax brackets, the corporate tax cuts, and the estate tax modification, a separate section, 13307, likely will have a significant impact on sexual harassment settlements.

 

Senator Bob Menendez (D- NJ) proposed the Weinstein tax exclusion (above) in direct response to the #MeToo movement after the sexual harassment revelations about Harvey Weinstein. The provision was added to the Tax Cuts and Jobs Act to restrict tax deductibility of sexual harassment settlements associated with nondisclosure agreements. Such agreements were reported in connection with Harvey Weinstein, Fox News, and other high profile cases.

Section 13307 modified the IRS Tax Code section 162 to eliminate the ability of businesses and defendants (and possibly plaintiffs) to deduct the costs associated with settlements of sexual harassment claims that are subject to nondisclosure agreements, including legal fees related to the settlements. Because most settlements related to sexual harassment have included confidentiality or nondisclosure language, the impact of this legislation will be significant for all parties involved, and will be reflected in advice from legal counsel. The provision applies to any payments made on or after December 22, 2017 and is not retroactive, except to the extent it affects payments left to be paid after December 22, 2017 on any prior settlement agreement.

The statutory language does not provide definitions for the terms “sexual harassment” or “sexual abuse.” The statutory language also does not clarify the meaning of “related to” for the purposes of settlement or legal fees. This ambiguity leaves several important open questions:

• An employment dispute that does not involve claims of sexual harassment but results in a nondisclosure agreement that includes broad releases may be problematic. If the scope of the releases includes sexual harassment claims, can that settlement be deducted by the business?

• What if a plaintiff has multiple claims, including but not limited to retaliation, gender discrimination, and a sexual harassment claim; what portions of a settlement payment will be deductible? Could effective contract drafting allocate most of the settlement consideration to the non-sexual harassment claims and thereby affect deductibility?

• In settling multiple claims, should counsel draft two separate agreements, one dealing only with the sexual harassment claim and the other agreement with all remaining claims, and allocating the larger portion of the settlement consideration to the nonsexual harassment claim, which is deductible?

• Does the statute exclude all legal fees associated with the claim from deduction, or just the portion of fees associated with the negotiation of the settlement and the drafting and execution of a settlement agreement?

Until more clarity is provided by administrative rules, legislative changes, or court opinions, lawyers will have an important role advising clients how to modify previous boilerplate nondisclosure settlement agreements Counsel also will be instrumental in structuring the negotiation of sexual harassment claims, as businesses and defendants weigh the potential benefit of keeping a sexual harassment claim confidential against the financial implication of losing the ability to deduct the settlement and legal fees.

The #MeToo movement has given a voice and a platform for sexual harassment victims. Because the number of sexual harassment claims, including class actions, is likely to increase, businesses will be motivated to increase their preventive efforts through education and training of their employees about sexual harassment. After the enactment of the Tax Cuts and Jobs Act, businesses and defendants also must be prepared to balance the cost of claims that can no longer be deducted against the value of confidentiality and settlement certainty.

The new tax provision is important, but also vague and subject to interpretation. In future issues, the Defense Litigation Insider will examine the effect of this legislation on the negotiation and drafting of settlement and nondisclosure agreements.

 

California Court of Appeals Allows Circumstantial Evidence to Create a Triable Issue of Material Fact

Posted in Asbestos Litigation, California Courts

In reversing a trial court’s grant of summary judgment to a defendant manufacturer, a recent California Court of Appeals decision reaffirmed the Lineaweaver standard, which allows a plaintiff to meet his burden of proof with circumstantial evidence.  The burden of rejoinder therefore remained on the moving defendant to prove a negative proposition; i.e., that it did not manufacture asbestos-containing products to which a plaintiff was exposed.

In Turley, v. Familian Corporation, plaintiffs Keith and Ann Turley filed a complaint against some 50 defendants alleging that Mr. Turley had asbestos-related disease as a result of exposure to asbestos-containing products, including valve gaskets, during his employment at Pacific Gas & Electric Company (PG&E).  Defendant Familian Corporation (Familian) moved for summary judgment on the grounds that plaintiffs could not establish that Mr. Turley was exposed to any Familian-related product or that Familian caused his alleged asbestos-related disease.  After continuing the motion to allow the deposition of Mr. Turley’s co-worker, Paul Scott, the court found that Mr. Scott could only speculate as to whether any particular gasket or packing material to which Mr. Turley was exposed had been manufactured by Familian or contained asbestos.  Reasoning that Mr. Scott’s deposition testimony (which Familian presented with its reply) prevailed over contrary declarations attached to the plaintiffs’ response, the trial court awarded summary judgment to Familian.

On appeal, the First Appellate District of the California Court of Appeals held that the trial court had abused its discretion by requiring plaintiffs to meet an incorrect legal standard.  The court first noted that in the context of asbestos-related injuries, the Lineaweaver standard requires a plaintiff to establish “some threshold exposure to the defendant’s defective asbestos-containing products” and “a reasonable medical probability that a particular exposure or series of exposures was a ‘legal cause’ of his injury, i.e., a substantial factor in bringing about the injury.”  See Lineaweaver  v. Plant Insulation Co., 31 Cal. App. 4th 1409, 1415-17 (1995).  The court reviewed the facts in Lineaweaver and stated that even without direct evidence of exposure, a plaintiff could meet his burden of proof with sufficient circumstantial evidence to support “a reasonable inference of exposure.”  The court found that Mr. Scott’s testimony was sufficient to create a triable issue of fact because the plaintiffs were not required to prove “a specific exposure to a specific product on a specific date or time.”  Rather, it is enough to show that the defendant’s product was present at the work site and “sufficiently prevalent to warrant an inference that the defendant was exposed to it.”  For example, Mr. Scott testified that he knew certain gaskets contained asbestos based on PG&E’s codes and other vendor numbers, as well as statements on packing slips and invoices.  In addition, the Court of Appeals cited to the California Supreme Court’s decision in Webb v. Special Electric Co., 63 Cal. 4th 167 (2016), which reversed a defense judgment notwithstanding the verdict on the grounds that plaintiffs had introduced evidence that the plaintiff was exposed to dust from Johns-Manville products containing trace amounts of crocidolite at the same time that the defendant was supplying crocidolite asbestos to Johns-Manville.

Moreover, the Court of Appeals disagreed that Mr. Scott’s deposition testimony contradicted his declaration regarding (1) the procedures and processes for ordering, procuring, distributing, and using gaskets, (2) his personal observations as to Mr. Turley’s presence in the immediate vicinity of mechanics replacing valve gaskets, and (3) his personal knowledge about the types of gaskets he ordered from Familian, how frequently he ordered products from Familian, and how those products were used.  Without a “clear and unambiguous” contradiction, it was an error to disregard Mr. Scott’s declaration.

The Court of Appeals also ruled that it was an error for the trial court to rely on deposition testimony submitted for the first time on reply, which denied plaintiffs an opportunity to respond to Familian’s arguments and to correct the trial court’s misunderstanding of the applicable standards.

After Turley, it is becoming increasingly clear that plaintiffs in California may rely on circumstantial evidence to create a triable issue of material fact.  As a practice point, defendants would also be advised to take early discovery of persons identified by plaintiffs as having knowledge of the presence of asbestos-containing products, however circumstantial that knowledge may be.

SJC Limits Individual Liability Under Massachusetts Wage Act for Investors and Board Members

Posted in Employment Litigation, Massachusetts Courts

In a recent decision, the Massachusetts Supreme Judicial Court (SJC) clarified the scope of personal liability for investors and board members under the Commonwealth’s Wage Act, as codified at G.L. c. 149, §§148-150.  The SJC held that investors and board members could not be held personally liable solely by virtue of their investment activity or acts performed in their official capacity as board members.  While the case involved a nuanced set of facts aptly described as “unusual and removed from the core concerns of the Wage Act,” its holding is nonetheless significant, and provides guidance for personal liability under the Wage Act for individuals other than a company’s president or treasurer.

In Segal v. Genitrix, LLC, 478 Mass. 551 (2017), H. Fisk Johnson and Stephen Rose, two former board members of Genitrix, LLC, sought direct appellate review of an adverse jury verdict that found them personally liable for failing to pay wages owed to the company’s former president and CEO, Andrew Segal.  Johnson, Rose, and Segal founded the biotech company, originally a Maryland LLC, in 1997.  Johnson briefly served as a board member during Genitrix’s opening year, but continued to invest in the company until its dissolution in 2007.  Johnson designated Rose as his appointee to the board and advised Segal that Rose was to be his contact for any financial matters.

As a condition to Johnson’s initial investment, he required Segal to execute an employment agreement with Genitrix.  The agreement stipulated that Segal would receive a fixed salary in consideration for his service as the company’s president and CEO, including managing the day-to-day financial and administrative affairs of the company.  Segal, the company’s sole officer, supervised the laboratory, managed all human resource functions, including payroll, and was the only individual authorized to issue wage checks.

The company began to experience financial difficulties in 2006, which led to Segal’s recommendation that the company lay off its at-will employees in order to meet payroll obligations.  In turn, the two defendants invested additional money in the company; however, they earmarked the investment for specific purposes such as funding payroll and replacing lab equipment.  The company’s financial condition worsened in 2007, and Segal unilaterally decided to stop taking his salary.  By mid-2007, the company was unable to make payroll and its board voted to lay off the other remaining employee.  The defendants made a final investment to pay off that employee’s remaining salary obligations and then shuttered the company’s doors.

The company ultimately filed a petition for judicial dissolution.  During those proceedings, Segal filed an array of claims against the company, and also attempted unsuccessfully to block the dissolution of Genitrix, a Delaware LLC.  See Fisk Ventures, LLC v. Segal, et al., C.A. No. 3017-CC (Del. Ch. Jan. 13, 2009).However, Segal did not assert a claim under the Massachusetts Wage Act.  Notably, Segal continued in his role as president while the dissolution proceedings were ongoing, despite continuing to decline a salary.  Segal’s belief that he eventually would get paid for the work did not come to fruition, and he filed a Wage Act claim in 2009.

The defendants were awarded summary judgment on the grounds that they did not “have the management” of the company, as required by the Wage Act.  That victory was fleeting, as the Massachusetts Appeals Court  reversed summary judgment on the grounds that a genuine issue of material fact existed as to whether the defendants managed the company.

On remand, the case went to trial, where the judge instructed the jury, in part, that “a person qualifies as an agent having the management of such corporation if he…controls, directs, and participates to a substantial degree in formulating and determining policy of the corporation.”  The jury went on to find both defendants personally liable based upon the given instruction.  The defendants then moved for direct appellate review on the grounds that there was insufficient evidence at trial to find personal liability, and that the above-referenced jury instruction was erroneous.

In a straightforward reading of the Wage Act, the SJC noted that the omission of investors and board members from the statute was significant.  Thus, the defendants could be personally liable only if they were deemed “agents having management of the company.”  This was the first time the SJC had been tasked with interpreting that language.

In doing so, the Court looked at whether the defendants were agents as a result of their board participation, and whether the restrictions placed on new investments constituted “management” activities.

Segal argued that the defendants exercised sufficient agency authority through their investment influence and board voting rights.  The SJC rejected this argument, and concluded that while “boards are regularly required to make difficult decisions that have an impact on the company’s finances,” such decisions are not acts of individual board members as “agents.”  The SJC also disagreed with Segal’s argument that placing conditions and other restrictions on incoming investments constituted management of the company.  On that point, the SJC held “[i]nvestment restrictions limited to the use of new monies are not management direction and control over existing resources,” and “exercising one’s rights and leverage over infusions of new money are separate and distinct from being an agent have the management of the corporation.”  The SJC also noted that as the only officer of Genitrix, Segal was “the only person expressly identified by virtue of his title as responsible for Wage Act violations,” and that Segal “made the decision not to pay himself.”

Segal is significant as it limits the circumstances in which a corporate director, board member or investor can be found individually liable under the Wage Act.  While personal liability for directors and investors is not entirely foreclosed, it cannot result solely on account of an individual’s position as board member or investor.  According to the SJC, the Wage Act continues to impose personal liability on those assuming individual responsibility as an officer or agent of a company, but it “does not impose individual liability on board members, acting as board members, or outside investors overseeing their investments.”  Given the rapidly expanding startup industry in Massachusetts, Segal provides some comfort that board members and investors will not face exposure to the draconian consequences of the Wage Act, provided that they do not participate in the management of a company to a greater extent than the defendants in Segal.