Sleeping Defendant: Plaintiff Secures Win for Class Certification and Damages Discovery
Hey TCPAWorld!
Bringing you a quick (painful and avoidable) ruling out of the Middle District of Florida in Ownby v. United 1st Lending, LLC., 2025 WL 81344 (M.D. Fla, Jan. 13, 2025).
By way of background, Plaintiff filed this action against United 1st Lending back in September 2024, alleging violations of the Telephone Consumer Protection Act (TCPA) and the Florida Telephone Solicitation Act (FTSA).
And what did United First Lending do in response? Nothing. So, Plaintiff secured a clerk’s default.
While Defendant sleeps, Plaintiff is on the move! And not just any Plaintiff’s counsel, local South Floridian Manny Hiraldo from TCPA’s Power Rankings of the most dangerous Plaintiff’s Firms.
In the underlying ruling, Plaintiff filed a Motion for leave to conduct class certification and damages-related discovery.
Again, what did United First Lending do in response? Nothing. Absolutely Nothing. Unbelievable.
The court, in a brief order, reiterated that district courts have broad discretion when it comes to class certification. According to Federal Rule 23, plaintiffs must meet certain criteria to get the class certified. Rule 23 mandates that a plaintiff demonstrate (1) the putative class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the putative class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the putative class; and (4) the representative parties will fairly and adequately protect the interests of the putative class. Fed. R. Civ. P. 23(a). The 11th Circuit recognizes that sometimes, even when a defendant defaults, plaintiffs might need a bit of discovery to nail down that certification. This case is no different.
Plaintiff anticipates the class could be massive—hundreds, if not thousands, of members—and he needs evidence like call logs to prove it.
The court found these assertions convincing enough to grant the motion, giving Plaintiff another win and granting his Motion for class certification and damages-related discovery. Just painful!
And now, United 1st Lending is about to experience the full brunt of class discovery—a grueling process that delves into records, logs, and everything else. One of my favorite parts of litigation. Somebody wake up United 1st Lending?!
If you’re a defendant, you never want to ignore a complaint. Respond! Do something! But lying down like a sleeping dog is a surefire way to get walked all over.
If you need assistance, don’t hesitate to reach out to Troutman Amin, LLP – we are awake and ready to help!
Til next time, Countess!!!
The CTA Is Dealt Another Blow
As has been widely reported, U.S. District Court Judge Amos L. Mazzant in early December of last year preliminarily enjoined the CTA and its implementing regulations. Texas Top Cop Shop, Inc. v. Garland, 2024 WL 5049220 (E.D. Tex. Dec. 5, 2024). This led to an off again/on again series of decisions from the Fifth Circuit Court of Appeals and a pending application for a stay of the injunction to the U.S. Supreme Court. See Seriously, The CTA Imposes Only “Minimal Burdens”? A response was filed with the Supreme Court last Friday as well as a plethora of amicus briefs.
In a further wrinkle, U.S. District Court Judge Jeremy D. Kernodle in the Easter District of Texas has also issued an injunction, finding with respect to the risk of irreparable harm:
Compelling individuals to comply with a law that is unconstitutional is irreparable harm. BST Holdings, LLC v. OSHA, 17 F.4th 604, 618 (5th Cir. 2021) (“For individual petitioners, the loss of constitutional freedoms ‘for even minimal periods of time … unquestionably constitutes irreparable injury.’ ” (quoting Elrod v. Burns, 427 U.S. 347, 373, 96 S.Ct. 2673, 49 L.Ed.2d 547 (1976))); Carroll Indep. Sch. Dist. v. U.S. Dep’t of Educ., ––– F.Supp.3d ––––, ––––, 2024 WL 3381901, at *6 (N.D. Tex. July 11, 2024) (noting that “the potential to infringe on constitutional rights” is “per se irreparable injury”); Top Cop Shop, ––– F.Supp.3d at ––––, 2024 WL 5049220, at *15 (“[I]f Plaintiffs must comply with an unconstitutional law, the bell [of irreparable harm] has been rung.”). And, as noted above, Plaintiffs have demonstrated that the CTA is likely unconstitutional.
Additionally, incurring unrecoverable costs of compliance with federal law constitutes irreparable harm. Wages & White Lion Invs., LLC v. FDA, 16 F.4th 1130, 1142 (5th Cir. 2021). And, here, Plaintiffs must expend money to comply with the reporting requirements of the CTA, which is unlikely to be recovered since “federal agencies generally enjoy sovereign immunity for any monetary damages.” Id.; Docket No. 7-1 at 3–4; Docket No. 7-2 at 3–4. Compliance with the CTA also requires Plaintiffs to provide private information to FinCEN that they otherwise would not disclose. Docket No. 7-1 at 4; Docket No. 7-2 at 4. The disclosure of such information is a type of harm that “cannot be undone through monetary remedies.” See Dennis Melancon, Inc. v. City of New Orleans, 703 F.3d 262, 279 (5th Cir. 2012); Top Cop, ––– F.Supp.3d at ––––, 2024 WL 5049220, at *15 (“Absent injunctive relief, come January 2, 2025, Plaintiffs would have disclosed the information they seek to keep private …. That harm is irreparable.”).
Smith v. United States Dep’t of the Treasury, 2025 WL 41924, at *13 (E.D. Tex. Jan. 7, 2025). Stay tuned.
Government Outlines Qui Tam’s Constitutionality in Detailed Brief to Eleventh Circuit
On January 6, the U.S. federal government filed a brief in U.S. ex rel. Zafirov v. Florida Medical Associates urging the U.S. Court of Appeals for the Eleventh Circuit to reverse a district judge’s ruling in a qui tam whistleblower case. In September, the U.S. District Court for the Middle District of Florida ruled that the False Claims Act’s qui tam provisions are unconstitutional, threatening to undermine the United States’ number one anti-fraud law.
The district court ruling found that the qui tam provisions were unconstitutional because they violated the Appointments Clause of Article II. The court ruled that by filing a qui tam lawsuit alleging Medicare fraud, whistleblower Clarissa Zafirov was granted “core executive power” without any “proper appointment under the Constitution.”
In its brief, the government claims that “other than the district court here, every court to have addressed the constitutionality of the False Claims Act’s qui tam provisions has upheld them.” It therefore urges the Eleventh Circuit to “join that consensus and reverse the district court’s outlier ruling.”
The government points to the Supreme Court decision in the 2000 case Vermont Agency of Natural Resources v. United States ex rel. Stevens, which held that the False Claims Act’s qui tam provisions are consistent with Article III. This decision “makes clear that relators do not exercise Executive power when they sue under the Act,” the brief states. “Rather, they are pursuing a private interest in the money they will obtain if their suit prevails. As private litigants pursuing private interests, relators are not enforcing federal law in a manner inconsistent with the Vesting and Take Care Clauses and need not be appointed in the manner required by the Appointments Clause.”
The brief further clarifies that while a relator’s qui tam suit “may also vindicate a federal interest in remedying and deterring fraud on the United States” “they are distinct from the government’s enforcement efforts even though they can supplement those efforts.”
The government additionally argues that qui tam relators are not government officers; do not exercise significant government authority due in part to the numerous statutory constraints which allow the government to “ensure that qui tam actions are consistent with its own priorities for the enforcement of federal law;” and do not occupy a continuing position since their role “is limited in time and scope, confined to a particular case, and fundamentally personal in nature.’
Further referencing Stevens and the Supreme Court’s emphasis on the long history of qui tam statutes in that decision, the government details “the prevalence of early qui tam statutes and the body of evidence that such statutes were understood to be constitutional.”
“The historical record.. suggests that all three branches of the early American government accepted qui tam statutes as an established feature of the legal system,” the brief states.
Overall, the government provides a detailed and comprehensive overview of the constitutionality of the False Claims Act’s qui tam provisions, rooted in both prior court precedent and the historical record.
Litigation Minute: A Look Back and Ahead
What You Need to Know in a Minute or Less
Throughout 2024, we published three series highlighting emerging and evolving trends in litigation. From generative AI to ESG litigation, our lawyers continue to provide concise, timely updates on the issues most critical to our clients and their businesses.
In a minute or less, find our Litigation Minute highlights from the past year—as well as a look ahead to 2025.
Beauty and Wellness
Our first series of the year covered trends in the beauty and wellness industry, beginning with products categorized as “beauty from within,” including oral supplements focused on wellness. We outlined the risks of FDA enforcement and class action litigation arising from certain marketing claims associated these products.
We next reviewed the use of “clean” and “natural” marketing terminology. We assessed these labeling claims across a range of potentially impacted products and brands, as well as regulatory and litigation risks associated with such claims.
Alongside these marketing-focused issues, companies also face increased regulatory scrutiny, including new extended producer responsibility laws and the FTC Green Guides. We concluded our series by assessing product packaging and end-of-life considerations for beauty and wellness brands.
Generative AI
One of the most-discussed developments of 2024, generative AI was the focus of our second series of the year, which examined key legal, regulatory, and operational considerations associated with generative AI. We outlined education, training, and risk management frameworks in light of litigation trends targeting these systems.
2024 also saw several new state statutes regulating generative AI. From mandatory disclosures in Utah to Tennessee’s ELVIS Act, we examined how new state approaches would remain at the forefront of attention for companies currently utilizing or considering generative AI.
With the need for compliance and training in mind, we next discussed the potential for generative AI in discovery. With the ability to rapidly sort through data and provide timely requested outputs, we provided an overview of how generative AI has created valuable tools for lawyers as well as their clients.
ESG Litigation
2024 highlighted the impacts of extreme weather, as well as the importance of preparation for such natural disasters. With extreme weather events expected to increase in both frequency and intensity around the world, we provided insurance coverage considerations for policyholders seeking to restore business operations following these events and weather the consequential financial storms.
Further ESG headlines this year focused on the questions surrounding microplastics—including general definition, scientific risk factors, potential for litigation, and the hurdles complicating this litigation.
Greenwashing claims, on the other hand, have experienced fewer setbacks, with expanded litigation targeting manufacturers, distributors, and retailers of consumer products. Alleging false representation of companies or their products as “environmentally friendly,” we reviewed how the risk of such claims can be mitigated through proper substantiation and documentation of company claims and certifications.
‘Motive’ or ‘Animus’? Lessons From Appellate Practice
The term “animus” is often used interchangeably with “motive” by lawyers and courts, but the two words have different meanings and connotations, and confusion between them can become an unnecessary complication. None of us needs any extra complications. So, practitioners may want to choose their words carefully.
Quick Hits
Lawyers may want to avoid using the term “animus” when a case depends solely on “motive,” as employment statutes generally focus on actions taken “because of” a protected characteristic.
The term “animus” can complicate legal cases unnecessarily, and its negative connotations are often irrelevant to the core issue of whether a decision was motivated by a protected characteristic.
Courts and lawyers often use the term “animus” interchangeably with “motive,” but it is crucial to choose words carefully to avoid unnecessary complications in legal arguments.
There is reason for using the term “animus” when “motive” is meant. First, it sounds awkward to write, “the defendant was not motivated by retaliatory motive.” Substituting “animus” at the end sounds better. Second, there is authority for the proposition that “animus” can simply mean “motive” or “intent,” without any negative connotations. For example, according to Black’s Law Dictionary, “animus” is defined as “Mind; soul; intention; disposition; design”), and other dictionaries have similar definitions. Third, as the Supreme Court of the United States explained in a 2024 decision, Murray v. UBS Securities, LLC, evidence of “motive” evidence often also shows “animus,” even when one defines “animus” to include negative connotations, such as “prejudice” or “comparable hostile or culpable intent.” Supervisors motivated by an employee’s race seem likely to be harboring negative feelings about that the employee’s race.
All that said, lawyers may want to consider avoiding the term “animus” when the case depends only on “motive,” which it usually does. Employment statutes generally prohibit “discriminating” against an employee “because of” the employee’s protected characteristic. The Supreme Court pointed out in Gross v. FBL Financial Services, Inc., decided in 2009, that taking an action “because of” a protected characteristic means it was the “reason” for the decision―i.e., what motivated the decision. AndBlack’s Law Dictionary defines “Motive” as the “Cause or reason that moves the will and induces action”). The Supreme Court also noted in Gross, as well as in Bostock v. Clayton County, Georgia, that ‘because of” means that the prohibited reason must have actually made the difference in the sense of being a “but for” cause.
In short, the statutes prohibit employers from treating employees differently because of a protected characteristic, and they do so without regard to the decision’s subtext, the Supreme Court further explained in Murray. That means “animus,” defined with its negative connotations, is irrelevant. Thus, in Murray, it did not matter if the employer treated the whistleblowing employee differently because of a desire for revenge or because of a beneficent “belief that the employee might be happier in a position that did not have SEC reporting requirements.” Similarly, when an employer treats women differently, it does not matter that it generally favors women or wants to protect them, the Court held in Automobile Workers v. Johnson Controls, Inc., a 1991 ruling. The opposite is also true. No matter how much ill will the decisionmaker had, a claim is not actionable if it made no difference in the decision made, the Court stated in Hartman v. Moore, a 2006 decision.
Complying With Recent Guidance From Delaware Courts Regarding Enforcement of Noncompetes
In line with the national trend making noncompetes more difficult to enforce, a number of Delaware courts have recently refused to “blue pencil” overbroad noncompetition agreements and have stricken them in their entirety. As a practical matter, this means that, in order for a noncompete to be enforceable under Delaware law (the chosen law for many business disputes for companies outside of Delaware), they must be narrowly drafted to be reasonable in scope and designed to protect only the employer’s legitimate business interests. Employees with noncompetes under Delaware law can no longer rely on Delaware courts to “blue pencil” a noncompete to make it enforceable. Thus, as discussed herein, noncompete agreements should be drafted to comply with the specific guidance that Delaware courts have provided, most recently in the Delaware Supreme Court’s decision in Sunder Energy, LLC v. Jackson, C. A. 455 (Del. Dec. 10, 2024).
In Sunder Energy, the plaintiff sought to enforce a noncompete against one of its former founders who went to work for a competitor. The noncompete was deemed overly broad in that it prohibited the former founder and his “affiliates” from engaging in door-to-door sales activities in the market where the former employer operated or anticipated operating. The Delaware Court of Chancery held that the noncompete was overbroad because it “requires that [defendant] prevent his [a]ffiliates from engaging in any sales of products to consumers in their homes. As written, [defendant’s] daughter ‘cannot go door to door selling Girl Scout cookies.’” The court also found the noncompete’s duration was unreasonable because it expired two years after the former founder ceased to own certain incentive units, which he could only transfer when his former employer decided to trigger the restriction, thus making the noncompete potentially indefinite as to time.
Significantly, the Court of Chancery declined to “blue pencil” the noncompete to make it enforceable, and the Delaware Supreme Court affirmed the lower court’s ruling. The court found that to blue pencil the restriction would result in employers being “less incentivized to craft reasonable restrictions from the outset.” The court noted that, unlike the facts in Sunder Energy, Delaware courts have exercised their discretion to blue pencil noncompetes under circumstances when: (i) the language of the non-compete was specifically negotiated; (ii) valuable consideration was exchanged for the restriction, or (iii) in the context of the sale of a business. The court declined to “craft an entirely new covenant to which neither side agreed.”
The drafting lessons learned from Sunder Energy are that noncompetes under Delaware law must be drafted narrowly as to scope of activities, geographic area, and time of limitation in order to be enforceable, and because Delaware courts may not “blue pencil” a noncompete, it would be prudent to draft with alternatives so that courts can strike without having to rewrite or blue pencil the agreement to make it enforceable. Lastly, the Sunder Energy decision reminds employers that valuable consideration and sufficient time to consider and understand the restriction (with the advice of counsel) makes it more likely that the noncompete will be enforceable or that a Delaware court might exercise its discretion to blue pencil the restrictive covenant.
Non-Competes: New Limits for Pennsylvania Health Care Practitioners
Pennsylvania’s new law, the Fair Contracting for Health Care Practitioners Act (the Act) went into effect on January 1, 2025. This law restricts the ability of employers and health care practitioners to enter into non-compete agreements. Governor Josh Shapiro signed the Act on July 23, 2024, aiming to ensure continuity of care between patients and their health care practitioners. The Act marks a notable change in employment practices for health care professionals in Pennsylvania, reflecting a broader movement to scrutinize restrictive covenants, especially in the health care sector. Its key goals include retaining health care talent, enhancing patient care, and promoting a competitive health care market.
The new law bans new non-compete covenants longer than a year for “Health Care Practitioners,” defined to include medical doctors, doctors of osteopathy, certified registered nurse anesthetists, certified registered nurse practitioners, and physician assistants. Certain non-competes entered into after January 1, 2025, are deemed “contrary to public policy and void and unenforceable by an employer.” However, non-compete provisions limited to one year or less are enforceable if the Health Care Practitioner terminates the employment relationship or if they are connected to the sale of a practice.
Key Provisions
Non-Compete Restrictions: Non-compete clauses that hinder Health Care Practitioners from treating or accepting patients are void and unenforceable. However, non-compete clauses lasting up to one year may still be enforced if the practitioner voluntarily resigns. These agreements become unenforceable if the employer terminates the practitioner’s employment, even if for cause.
Cost Recovery for Employers: Employers can recoup reasonable expenses, such as relocation, training, or patient acquisition costs, incurred within three years before a Health Care Practitioner voluntarily leaves.
Non-Competes in Business Sales: Non-compete agreements remain valid when tied to the sale or transfer of a business if the Health Care Practitioner is a party to the transaction.
Patient Notification: Employers must notify patients within 90 days if a practitioner with whom they have had a two-year outpatient relationship departs from the employer’s practice. The notice must explain the practitioner’s departure, how to transfer medical records, and options for continuing care with the employer or another provider.
Effective Date: Non-compete agreements executed before January 1, 2025, remain unaffected. Employers and health care practitioners should review existing agreements to prepare for the Act’s implications.
Moving Forward
Pennsylvania is among a growing number of states, including Iowa, Maryland, and Louisiana, that are restricting non-compete clauses in or health care providers’ employment agreements, joining over a dozen states have introduced similar measures. Although, the Federal Trade Commission’s proposed ban on non-compete agreements, which is currently facing legal challenges, does not apply to not-for-profit entities, such as many hospital systems. Now, Pennsylvania not-for profit health care organizations along with those in the private sector will have to consider this law when seeking to place covered Practitioners under post-employment restrictions.
WRONG PERSON: Arbitration Denied in TCPA Suit As Camping World Looks to Have Texted a Reassigned Number– But Why?
Another day, another difficult TCPA ruling involving an online webform submission.
This time arbitration was denied in a putative TCPA class action arising out of a webform submission on campingworld.com.
In Conrad v. Camping World Holdings, 2025 WL 66689 (N.D. Al. Jan, 9, 2025) the defendant moved to compel arbitration contending Plaintiff had signed up for a recurring text program on its website, supplied his phone number and agreed to arbitration in the process.
Just one little problem– the Plaintiff claims he did not even own the phone number at the time the form was submitted. So–in his view–it would be impossible for him to have filled out the form.
The Court agreed and determined given camping world’s lack of evidence that Conrad himself filled out the form arbitration must be denied. (This also means any consent disclosure on the website would also not apply to Plaintiff!)
Conrad once again highlights the trouble with online web submissions– you never really know who is filling out the form. But the Camping World flow apparently did not collect the name of the submitted party–just relying on a double opt in to assure TCPA compliance. That is a somewhat risky maneuver.
The real risk, however, is in reassigned numbers. The number was subscribed onto the text program in 2022 but plaintiff received the texts after he obtained the number in September, 2023. This suggests to me the number changed hands and the texts went to the wrong number.
The simply way to avoid such issues is just to use the FCC’s reassigned numbers database!
If you are sending text messages on a recurring basis to numbers you obtained more than 90 days ago you simply must be using this database to avoid inevitable TCPA risk when numbers change hands.
Mass Arbitration 101
In today’s legal landscape, understanding both the power and the limitations of mass arbitration is crucial. Mass arbitration has been employed as a strategy for giving major corporations a taste of their own medicine. Recent precedents suggest that it can succeed in recovering compensation and holding a company to task even when a consumer’s or employee’s ability to sue is restricted by prior agreements or internal policies. However, when done incorrectly, mass arbitration can lead to excessive fees and higher costs, without benefit to the claimant.
What Is Mass Arbitration?
If you work for a corporation, you may well have signed an arbitration agreement as part of your employee onboarding. As a consumer, you are often bound by agreements with arbitration clauses when you accept terms of use for online accounts or apps such as Uber, Tinder, StubHub, and more. By clicking through and acknowledging those terms, you might be forced to give up your right to file a lawsuit in court against the company or to participate in a class action lawsuit. Instead, you would have to resolve disputes through arbitration – a legally binding process that takes place outside the courtroom and can be very expensive. It centers around the use of a private arbitrator (a neutral third party) who is paid by the parties to act similarly to a judge by hearing each party’s arguments and making a decision.
The right to agree that conflicts must be settled through arbitration stems from the 1925 Federal Arbitration Act, originally designated for intra-business use. Arbitration between two parties with equal power and resources can be a useful tool, allowing for the private resolution of conflicts with less time or resources than those needed for court proceedings and a trial. Corporations soon realized that they could impose arbitration clauses upon less powerful entities, forcing employees and consumers to accept their terms, often not realizing they are doing so. This can make it extremely difficult if not impossible to pursue their claims because of the cost of arbitration and because they cannot proceed as part of a group. In 2011, the Supreme Court case AT&T Mobility LLC v. Concepcion, 563 U.S. 333, largely upheld this tactic by enforcing an agreement in consumers’ cell phone contracts saying they could not participate in a class action. But savvy lawyers have fought back through mass arbitration. This is a strategy that involves filing multiple similar claims in arbitration together at once to leverage the strength of a group of legal claims, like a class action does. By filing many claims together, this creates a burden on the company that insisted upon the arbitration process, shifting the power dynamic back toward the consumers or employees.
Mass Arbitration vs. Individual Arbitration
Individual arbitration often pits individuals against powerful corporations. Unlike traditional court proceedings, arbitration limits the rights of employees and consumers by removing opportunities for discovery and appeal. Although arbitrators play a similar role to judges, they are not bound by the same rules. Arbitration is also kept private, allowing companies to settle claims of fraud, harassment, or bad behavior without negative press. In addition, arbitration fees often make filing a claim more costly than any potential recovery.
As an example, imagine you are an employee who is owed overtime pay in the amount of $475. If you are bound by an arbitration clause, it will likely cost you more than that amount to present your claim, once you account for arbitration filing fees and possible attorney’s fees. The company you work for will also pay fees but can afford to do so more than the employee with fewer resources at their disposal. Individual arbitration banks on this imbalance in the power dynamic to dissuade employees and consumers from following through on their claims.
Mass arbitration turns the tables on companies to uphold consumer and employee rights. In a mass arbitration effort, each employee who is owed overtime pay can file their claim together at the same time. In doing so, they put the company on the hook for thousands or even millions of dollars in arbitration fees at once, similar to what they might face from an in-court lawsuit. Meanwhile, the claimants themselves are represented by a firm that is able to shoulder the upfront fees while seeking to recover a higher amount in the long run from a settlement. Bringing people with similar claims together creates an economy of scale, decreasing the administrative cost and easing the burden of the individual claimants.
Mass Arbitration vs. Class Action
A class action lawsuit is a legal process in which a group of people who have been harmed in a similar way by someone’s actions come together to file one shared claim for compensation in a court of law. Class action lawsuits provide rights to plaintiffs that arbitration does not, such as allowing for the discovery process as well as the option to appeal.
In a typical class action lawsuit, proceeds are divided amongst plaintiffs, with exceptions made for those who have seen a disproportionately higher degree of harm. An example of a class action settlement is when a bank pays a settlement to all of its customers who paid unlawful overdraft fees. Everyone who is a class member may be awarded part of the settlement, but those who paid more in fees will likely receive a higher share than others.
Mass arbitration can provide a similar recourse for harmed people who are unable to join a class action lawsuit due to an arbitration clause, but who have similar claims. Unlike a class action lawsuit, in order to benefit from mass arbitration, the harmed people must generally affirmatively sign up to participate.
Do I Have a Case?
In order to see whether you can file an arbitration claim, you will need to look into your specific contract with the company to verify if you are bound by an arbitration clause. If you work in the private sector and are a non-union employee with a corporation, you may well be bound by a mandatory arbitration clause in the event of a dispute. Many consumers are also bound by arbitration clauses in the event that they suffer harm due to a company’s practices, from false advertising to unlawful charges.
If arbitration is your only option, contact a law firm with experience in mass arbitration to see if there are others who may be able to join you in your claim. Mass arbitration has a much higher success rate than individual claims but comes with a high administrative cost and generally requires a minimum number of claimants. This number may differ depending on the specific arbitration firm that contracts with the company. Mass arbitration does not have a limit on the maximum of claims that can be filed at once, which means there may be hundreds or even thousands of other individuals who allege similar harm and can join the process.
Mass Arbitration Procedures
Mass arbitration is largely done through private companies like the American Arbitration Association (AAA) and the Judicial Arbitration and Mediation Services, Inc. (JAMS). The rules of each service differ, and working with a skilled attorney is crucial to ensure that the required procedures are followed appropriately to give your claim the best chance of success.
Companies often specify in their arbitration clauses which third party arbitrator service will be used, prior to any dispute being filed. When an arbitration claim is filed, both parties pay the arbitrator a filing fee in order to begin the proceedings. The amount of the fee differs based on the type of case, the arbitrator used, and the number of claims filed. The final decision of the arbitrator (or panel of arbitrators) is legally binding.
Consumer or workplace disputes filed under the AAA must involve at least 25 demands for arbitration filed at once to be considered “mass arbitration.” Under the rules of FEDARB, a minimum of 20 claimants must file together to be considered under its ADR-MDL framework for mass arbitration.
Are There Benefits to Mass Arbitration?
Mass arbitration can be both efficient and cost-effective compared to an individual claim, leveraging the power of collective action. Mass arbitration has recovered over $300 million for employees and consumers, much of which would never have been on the table due to the restrictive structure of individual arbitration agreements. Under mass arbitration, companies can also be incentivized to pay higher settlements to claimants in order to avoid the fee structure of arbitration.
The mass arbitration process has resulted in significant wins for consumer rights over the years. For instance, in 2021 Amazon received over 75,000 arbitration claims alleging that their Echo devices had recorded consumers without their consent. In the wake of these claims, Amazon removed its mandatory arbitration clause from its terms of use. This way, consumers can once more file class action lawsuits, resetting the playbook and resulting in a significant check on corporate power.
Challenges and Criticisms of Mass Arbitration
While mass arbitration is a useful process for holding companies accountable for harm, it is not a silver bullet. At the end of the day, arbitration is still structured to take place on the defendant’s terms. Some of the main pitfalls of mass arbitration include:
Companies Avoiding Fees
Companies that attempt to shirk paying filing costs change the rules of the game that they established. For instance, Uber and Family Dollar both sued their own arbitrators, alleging excessive fees compared to the settlement amounts that were being debated in arbitration. A recent Samsung mass arbitration claim resulted in the company refusing to pay arbitrator fees after being hit with over $2.5 million in filing fees for two separate sets of claims, Wallrich and Hoeg—even after the consumers had paid their filing fees. This led the AAA to close the proceedings, depriving claimants of the opportunity to present their claims in arbitration. It may be only a matter of time before fee structures are further amended in order to benefit corporate interests once more.
High Fees and Costs
Mass arbitration involves prohibitively high upfront fees for many lower-dollar claims, limiting what kinds of claims are best suited to this type of recovery process. It often involves limited or no discovery, which can mean the consumer or employee may not have access to critical evidence to support their claims, particularly ones that are factually complex like employment discrimination or sexual harassment cases. On the other hand, more straightforward cases like unpaid overtime claims hinge mostly on mathematical calculations for proof, and can thus be more easily pursued through mass arbitration.
Delays
Mass arbitration can take a long time when thousands or hundreds of thousands of claims are involved, which can delay results for claimants. For instance, JAMS guidelines point out that the few hundred arbitrators it employs cannot reasonably work through 50,000 claims in a fair span of time, limiting the scope of mass arbitration as a tool for consumers.
Illegitimate Claims
Finally, critics argue that mass arbitration can become a tool of extortion, leading companies to settle simply because of the threat of high fees and not because of the legitimacy of the claims. Mass arbitration comes with the risk of frivolous claims being lumped into consideration in order to increase the overall cost to the corporation, thus de-legitimizing the process.
Choosing a respected law firm to represent you is necessary to increase the likelihood of all claims being thoroughly vetted so you can avoid penalties or possible legal action down the line. A mass arbitration law firm must have the resources to credibly discover, contact, investigate, and communicate with what can amount to hundreds or thousands of clients, as well as file each of their individual claims in the appropriate manner.
What Does the Mass Arbitration Process Look Like?
The mass arbitration process is typically structured based on guidelines from the arbitration company and may include the following steps:
Initiating a mass arbitration: By working with a qualified law firm, your claim will be filed under the appropriate guidelines and timelines set by AAA, JAMS, or another arbitration company, including filing the proper documents and paying the appropriate fees.
Selecting arbitrators: Each arbitration provider has specific rules and processes for selecting the specific arbitrator(s) who will hear the claim or claims.
Evidence gathering: There is usually a limited discovery process to investigate the legitimacy of the claims and defenses.
Hearing: Claims under certain amounts (for example, $100,000 under FEDARB guidelines) will be held virtually. Compelling circumstances or higher penalty amounts may result in an in-person hearing.
Award: If the parties do not choose to settle in advance, you will receive a ruling determining the claim or claims. There is no guaranteed right of appeal with an award from arbitration.
How Long Does the Arbitration Process Take?
Mass arbitration typically takes less time than a case filed in court. When statutory damages are involved, most mass arbitration cases are decided in around a year, according to FEDARB.
Notable Mass Arbitration Cases
Recent years have seen a wave of high-profile mass arbitration cases as consumers turn to law firms to protect their rights. Some claims include apps and services that have threatened consumer privacy by allegedly collecting sensitive, financial, or identifying information from their users. For instance, a mass arbitration case involving Bumble accused the dating app of violating the Biometric Information Protection Act (BIPA) by scanning user selfies. Meanwhile, tech giants Google and Meta have been accused of aggregating tax information from H&R Block in order to advertise financial services to their users. Other claims involve hidden fees and higher costs passed onto consumers, like those filed against Spotify, Valve, Uber, Amex, and Peloton.
What Should I Do If I Have a Mass Arbitration Case?
As companies attempt to block or circumvent high arbitration fees, change their policies, and generally escape liability for harm done, mass arbitration continues to be a complex and rapidly changing area of law. If you have been injured or have suffered adverse effects due to a company’s actions, contact an arbitration lawyer to find out if you are eligible to join a class action lawsuit or if you are bound by an arbitration clause. If so, mass arbitration may be a viable path toward your recovery.
Weekly Bankruptcy Alert January 13, 2025 (For the Week Ending January 12, 2025)
Covering reported business bankruptcy filings in Massachusetts, Maine, New Hampshire, and Rhode Island, and Chapter 11 bankruptcy filings in New York and Delaware listing assets of more than $1 million.
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Assets
Liabilities
FilingDate
Elements UES, LLC(New York, NY)
Other Amusement and Recreation Industries
Manhattan(NY)
$1,000,001to$10 Million
$1,000,001to$10 Million
01/12/25
In2vate, LLC(Tulsa, OK)
Business Schools and Computer and Management Training
Wilmington(DE)
$100 Millionto$500 Million
$100 Millionto$500 Million
01/09/25
MYA POS Services, LLC(Lebanon, NH)
Restaurants and Other Eating Places
Concord(NH)
$0to$50,000
$1,000,001to$10 Million
01/07/25
Rock 51 LLC(New York, NY)
Not Disclosed
Manhattan(NY)
$10 Millionto$50 Million
$1,000,001to$10 Million
01/12/25
Wynne Transportation Holdings, LLC2(Dallas, TX)
Charter Bus Industry
Wilmington(DE)
$10 Millionto$50 Million
$10 Millionto$50 Million
01/10/25
Chapter 7
Debtor Name
BusinessType1
BankruptcyCourt
Assets
Liabilities
FilingDate
Joriki USA Inc.(Pittston, PA)
Not Disclosed
Wilmington(DE)
$100 Millionto$500 Million
$100 Millionto$500 Million
01/12/25
Roca C LLC(Fall River, MA
Not Disclosed
Boston(MA)
$1,000,001to$10 Million
$1,000,001to$10 Million
01/08/25
1Business Type information is taken from Bankruptcy Court filings, which may include incorrect categorization by the debtor or others.
2Additional affiliate filings include: Wynne Transportation, LLC; Coastal Crew Change Company, LLC; WTH Commercial Services, LLC; Southwest Crew Change Company, LLC; Great Plains Crew Change Company, LLC; and Allegheny Crew Change Company, LLC.
Third-Party Litigation Funding in England and Wales Post-PACCAR: Where are We Now?
In our earlier alert on third-party funding (TPF) and the UK Supreme Court’s decision in PACCAR, we discussed the initial industry reaction, subsequent litigation, and legislative reform proposals (at the time, through the remit of the Digital Markets, Competition and Consumers Bill (DMCC Bill) – introduced by the former, Conservative UK government under then Prime Minister, Rishi Sunak).
This alert provides an update on where we are now, following the publication of the Civil Justice Council (CJC) interim report and consultation on litigation funding, which confirmed that the current UK government will not be re-introducing the Litigation Funding Agreements (Enforceability) Bill (LFA Bill) any time soon—instead, looking at legislative reform in the round after the CJC’s final report is published in summer.
We therefore discuss the early indications around the CJC’s direction of travel and recent industry reaction as we await these all-important clarifications.
Recap
In July 2023 in PACCAR, the UK Supreme Court held that litigation funding agreements (LFAs) that entitle funders to payments based on the amount of damages recovered would be classified as damages-based agreements (DBAs). In turn, they would have to comply with the Damages-Based Agreements Regulations 2013 (DBA regime) or risk being deemed unenforceable. The decision brought the enforceability of many pre-existing LFAs into question and created large scale uncertainty within the TPF market. This was a particular problem for opt-out collective proceedings in the Competition and Appeals Tribunal (CAT), where DBAs are strictly prohibited (s.47C(8), Competition Act 1998).
Originally, there were proposals to restore the pre-PACCAR position through a last minute amendment to the DMCC Bill. By March 2024, this was a bill of its own—the LFA Bill. The LFA Bill was to be an integral part of the last government’s commitment to restoring the pre-PACCAR status quo, passing second reading in the House of Lords on 15 April 2024. However, it did not survive the pre-election wash up ahead of the dissolution of parliament on 30 May 2024, remaining indefinitely postponed under the new administration.
CJC Review of the TPF Market in England and Wales
In spring 2024, prompted by the PACCAR decision, the then Lord Chancellor called upon the CJC to conduct a wider review of the TPF market. At this time, the PACCAR decision was to be reversed via the LFA Bill, which, as above, later fell through on change of governments.
On 31 October 2024, the CJC published its much-anticipated interim report and consultation on litigation funding, as the first phase of the CJC review process. Being interim in nature, it seeks to identify the concerns within the current system of TPF in England and Wales and set up the key issues that the CJC is consulting on. Whilst only interim in nature, it does give an indication of the CJC’s (and, subsequently, the government’s) direction of travel.
Broadly, the interim report covers the development of TPF in England and Wales and the current self-regulatory model, approaches to the regulation of TPF across different jurisdictions, the relationship between costs and funding, and existing funding options.
There are 39 consultation questions that the CJC seeks input on, located at Appendix A.
In sum, these questions cover:
The benefits of TPF (namely, access to justice and equality of arms between parties to litigation).
The extent to which the current model of self-regulation works and whether there should be one homogenous regulatory framework applied to (i) all types of litigation and (ii) English-seated arbitration.
Whether and, if so, to what extent, a funder’s return on any third-party funding agreement should be subject to a cap.
How TPF should best be deployed relative to other sources of funding (including legal expenses insurance and crowd funding).
The role of the court in controlling the conduct of litigation support by TPF or similar funding arrangements.
What provision (including provision for professional legal services regulation), if any, needs to be made for the protection of claimants whose litigation is funded by TPF.
The extent to which the availability of TPF encourages specific forms of litigation.
Responses to the consultation are sought by 11:59 pm on Friday 31 January. The CJC will then issue a final report in summer with outcomes and recommendations.
Direction of Travel
Whilst the CJC report is only interim in nature, it does give us an indication of the CJC’s early thinking and the potential direction of travel. Some of these key themes are discussed below.
Self-Regulation
A large section of the CJC interim report focuses on the self-regulation of TPF in England and Wales through voluntary subscription to the ‘Code of Conduct for Litigation Funders’ published by the Association of Litigation Funders (ALF Code) and how this compares with other jurisdictions. The report notes that the current model of self-regulation was introduced in 2011, at a time when the TPF market was still beginning to develop, and notes that the TPF market has since expanded very significantly, especially in respect of funding collective proceedings and group litigation. On take up of the ALF Code, the report suggests that whilst an estimated 44 funders operate in England and Wales, only 16 are members of the ALF and thereby party to the ALF Code. Of these 16 members, eight are also members of the International Litigation Funders Association. Many commentators suggest that the interim report’s discussion of the current model of self-regulation may be indicative of the introduction of new legislation to regulate the TPF industry in the future.
PACCAR
The interim report doesn’t address the resolution of PACCAR specifically, which has sparked some criticism. Some commentators have referred to the fact that when the CJC’s original Terms of Reference were set in spring 2024, PACCAR was to be resolved via legislation which has since fallen away. The interim report offers no indication of whether PACCAR would be addressed in light of this.
The co-chair of the CJC review, Dr John Sorabji, has since suggested that whilst consideration of a litigation funding bill falls outside of the Terms of Reference, the CJC’s wider review of TPF industry includes consideration of the DBA regime, for which PACCAR will inevitably be considered.
Several challenges to LFAs are currently stayed in the Court of Appeal as the TPF market awaits a legislative solution to PACCAR. Many funders have since adopted some combination of the ‘multiples’ approach linked to sums invested, internal rates of return and compound interest rates, and creatively drafted clauses that seek to pre-empt a legislative resolution to PACCAR. For now, the TPF market will have to eagerly await the final report and any legislative solution that follows.
Funder Involvement in the Settlement of Disputes
The interim report notes that the nature of TPF means, on the one hand, that the ‘risk exists that funders will control the litigation’ and that ‘TPF discourages and undermines just settlement’. On the other hand, the report explains how the ALF Code makes provision for a dispute resolution procedure in these instances. Here, under the ALF Code the funder and funded are required to instruct a Kings Counsel (either jointly instructed, or as nominated by the Chairman of the Bar Council) to provide a binding opinion on the settlement proposal.
The debate around funder involvement in settlement has also been accelerated by recent headlines around the long running collective action in Merricks v Mastercard, in which the class representative, Walter Merricks, is said to have accepted a £200m settlement offer, much below the original claim value. The funder, Innsworth, has since publicly criticised the decision and written to the CAT ahead of the tribunal reviewing the terms of the settlement early this year.
There is currently no clarity as to whether—and if so to what extent—a funder’s interests will be considered a relevant factor in deciding whether a settlement is just and reasonable. Indeed, this may be the first case to decide the point.
Conclusion
The interim report has therefore provided much food for thought around the future direction of travel. Whilst only indicative at this stage, it looks as though we may be moving away from the model of self-regulation that has existed since 2011, that PACCAR is likely to be addressed in the context of a wider discussion of the existing DBA regime, and that Courts will soon be tasked with considering funder submissions around settlement terms.
Responses to the CJC consultation are open until 31 January. Consultees do not need to answer all questions if only some are of interest or relevance. The full list of consultation questions is available here.
Wisconsin Appellate Court Interprets Construction Defect Exclusion and Fungi Exclusion
Cincinnati Insurance Company v. James Ropicky, et al., No. 2023AP588, 2024 WL 5220615 (Wis. Ct. App. Dec. 26, 2024)
On December 26, 2024, the Court of Appeals of Wisconsin issued is decision in Cincinnati Insurance Company v. James Ropicky, et al., No. 2023AP588, 2024 WL 5220615 (Wis. Ct. App. Dec. 26, 2024), addressing whether an ensuing cause of loss exception to a Construction Defect Exclusion, Fungi Exclusion, and Fungi Additional Coverage endorsement contained in a homeowner’s insurance policy issued by Cincinnati to its insureds precluded coverage for damage sustained by the insureds’ home following a May 2018 rainstorm. A final publication decision is currently pending for this case.
Background Information
James Ropicky and Rebecca Leichtfuss (collectively “the insureds”) submitted a claim to their homeowner’s insurer, Cincinnati Insurance Company (“Cincinnati”), for alleged water and fungal damage that their home sustained as a result of a rainstorm that occurred on May 11, 2018. Based on Cincinnati’s investigation and the opinions rendered by its expert following his inspections of the insureds’ home, Cincinnati provided limited coverage for the insureds’ claim based on the contention that a majority of the damage was the result of “design or installation deficiencies” that had allowed storm water to enter the interior wall structure. Therefore, Cincinnati concluded the subject damage was either excluded under the policy’s Construction Defect Exclusion and Fungi Exclusion, or subject to the policy’s Fungi Additional Coverage endorsement. As a result, Cincinnati paid $10,000 under the policy’s fungi-related coverage (Fungi Additional Coverage endorsement) and $2,138.53 for other damages falling within the ensuing cause of loss exception to the Construction Defect Exclusion. Cincinnati denied coverage for costs associated with remedying and repairing the purported construction defects.
Eventually, Cincinnati filed a lawsuit against its insureds seeking declaratory judgement as to its coverage position. In response, Cincinnati’s insureds disputed Cincinnati’s coverage position and filed counterclaims against Cincinnati for breach of contract, declaratory judgment, and bad faith related to Cincinnati’s handling of their claim. The circuit court ultimately granted Cincinnati’s summary judgment motion as to coverage, agreeing that the Construction Defect and Fungi Exclusions contained in the applicable homeowner’s policy barred any additional coverage under the policy’s terms beyond that which Cincinnati had already paid with respect to the alleged May 2018 rainstorm damage. Further, because the circuit court ruled in Cincinnati’s favor and held that Cincinnati had not breached its contract with the insureds, the court dismissed, sua sponte, the insured’s bad faith claim as a matter of law. The insureds appealed the circuit court’s decision.
Decision and Analysis
On appeal, the Court of Appeals of Wisconsin concluded the ensuing cause of loss exception to the policy’s Construction Defect Exclusion reinstates coverage, and the policy’s Fungi Additional Coverage endorsement renders the Fungi Exclusion inapplicable. Thus, the appellate court reversed the circuit court’s decision, finding the circuit court erred in granting summary judgment in Cincinnati’s favor, and remanded the case for further proceedings.
First, the appellate court held that even assuming the Construction Defect Exclusion applies, the damage to the insureds’ home nevertheless constitutes an ensuing cause of loss under the policy’s ensuing cause of loss exception and the authority of Arnold v. Cincinnati Insurance Co., 2004 WI App 195, 276 Wis. 2d 762, 688 N.W.2d 707. Relying on Arnold as binding authority, the appellate court explained that an “ensuing loss” “is a loss that follows the excluded loss ‘as a chance, likely, or necessary consequence’ of that excluded loss[,]” and “in addition to being a loss that follows as a chance, likely, or necessary consequence of the excluded loss, an ensuing loss must result from a cause in addition to the excluded cause.” Id. at ¶¶27, 29 (emphasis added). The appellate court then proceeded to apply the following three-step framework adopted in Arnold to determine whether the ensuing cause of loss exception applies: (1) first identify the loss caused by the faulty workmanship that is excluded; (2) identify each ensuing loss, if any – that is, each loss that follows as a chance, likely, or necessary consequence from that excluded loss; and (3) for each ensuing loss determine whether it is an excepted or excluded loss under the policy. See id. at ¶34. Based on the appellate court’s application of this three-step framework, it concluded the rainwater at issue, i.e., the May 2018 rainstorm, was an ensuing cause of loss within the meaning of the applicable policy’s ensuing cause of loss exception to a Construction Defect Exclusion.
Second, the appellate court held that the policy’s Fungi Exclusion and its anti-concurrent cause of loss clause did not exclude coverage for the damage to the insureds’ home. Most significantly, in reaching this conclusion, the appellate court determined that the phrase “[t]his exclusion does not apply” in the Fungi Exclusion does not introduce an exception to the exclusion, but rather introduces two scenarios in which the Fungi Exclusion is never triggered in the first instance because its conditions for application are never satisfied. According to the appellate court, one of the circumstances enumerated in the Fungi Exclusion, wherein it states the exclusion “does not apply” “[t]o the extent coverage is provided for in Section I, A.5. Section I – Additional Coverage m. Fungi, Wet or Dry Rot, or Bacteria with respect to ‘physical loss’ caused by a Covered Cause of Loss other than fire or lightning,” rendered the exclusion inoperative with respect to the subject loss. Notably, the concurring opinion explains how the majority’s interpretation of the Fungi Exclusion’s “this exclusion does not apply” language appears to depart from prior case law, wherein Wisconsin courts have repeatedly concluded that this language creates an exception to an exclusion that reinstates coverage. See Neubauer, J. (concurring).
Third, the appellate court held the policy’s $10,000 limit of Fungi Additional Coverage applies to the portion of subject home’s damages that was at least partially caused by “fungi, wet or dry, or bacteria.” However, the $10,000 limit does not decrease or limit the coverage that was otherwise available for the home’s damages caused solely by rainwater.
Based on its interpretation of the policy provisions set forth above, the appellate court additionally held: (1) genuine questions of material fact exist at least as to whether “fungi, wet or dry rot, or bacteria” caused any of the damage to the insureds’ home, and if so, what portion of the damage is attributable to “fungi, wet or dry rot, or bacteria”; (2) only after properly apportioning any damage caused by “fungi, wet or dry rot, or bacteria” can Cincinnati determine the extent of coverage it is obligated to provide under the terms of the homeowner’s insurance policy; and (3) because issues of material fact remain as to the cost to repair the construction defects (not the ensuing loss), this issue remains to be addressed on remand. The appellate court also reinstated the insureds’ bad faith claim asserted against Cincinnati in the underlying action, which had been dismissed by the circuit court when granting summary judgment in Cincinnati’s favor.