Down Economy Fueled Employment Settlements In 2010

Posted January 1st, 2011.

As It Appeared On

Law360

By Ian Thoms

Law360, New York (January 1, 2011) — Tough economic times and the fear of hostile juries led many employers to the negotiating table in 2010, with large classes of plaintiffs yielding high-dollar settlements in employment cases in 2010.

Of the 10 largest payouts in employment suits in 2010, all but one were settlements. Companies shelled out more than half a billion dollars in those cases, and with the unemployment rate sitting at just under 10 percent, defense attorneys expected companies would continue to steer clear of juries whenever possible.

Unlike 10 years ago, when some defendants were willing to go to the mat to dispute employee allegations and prove a point, the vast majority of companies now find mounting a defense cost-prohibitive, both in terms of its bottom line and public image.

“This is a climate in which you have a lot of people who are very angry. They’re angry about the bailout. They’re angry at corporate America,” plaintiffs attorney David Sanford of Sanford Wittels & Heisler LLP said. “I think if I was on the defense side, I would definitely take that into account.”

Sanford and his clients benefited from the climate in a big way when they won a record-breaking $250 million jury verdict against Novartis Pharmaceuticals Corp. in May. Following the verdict, Novartis agreed to pay $175 million to settle with the plaintiffs, a class of more than 6,000 women who claimed the company discriminated against them.

Prior to the jury verdict and eventual settlement, Novartis had been known for its anti-discriminatory policies; it had been featured as one of the 100 best places to work by Working Mother magazine for the previous 10 years. But the drugmaker fell victim to a few “bad apples,” a vulnerability shared by most large companies, according to attorneys.

After the settlement, Novartis CEO Joe Jimenez said: “While we believe that there was not systemic discrimination at [Novartis], the trial revealed that some of our associates had experiences influenced by managerial behavior inconsistent with our values.”

With huge class sizes, some plaintiffs are bound to have egregious examples of employer behavior, even if it is not endemic of a wider culture of discrimination, attorneys said.

“That’s very dangerous for the company. You’re talking thousands of class members with very different work histories, different supervisors, different managers,” Samuel Matchett of King & Spalding LLP said. “You’ve got to train your managers, the folks who are there in the trenches, the front line.”

But employers look for places to cut in a poor economy, and training and other forms of preventative maintenance are often the first expenses they eliminate, according to some attorneys.

“Internal and external audits are more important than ever. But the challenge is in a down economy the clients are often reluctant to spend that money to review their classification and wage policies,” Robert Hudson of Frost Brown Todd LLC said.

For some, the focus has shifted away from preventing fires to putting them out. “Ten years ago you had lawyers like myself doing 40 percent of his work on preventative maintenance, which frankly is more gratifying,” Hudson said.

But several other defense attorneys disagreed, saying their clients are constantly asking for advice on how they can ensure they\’re not targets. They tell employers to train their managers aggressively, hire wisely and conduct regular self-examinations. Even with the best of policies, employers might find a pattern of discrimination during an audit.

Another byproduct of the economy is the growing plaintiff pool, attorneys said. When people feel safe in their jobs, they tend to avoid filing a lawsuit, and the reverse is true during a recession.

“What catches my eye is that the trend of large litigation continues and is being fueled by what’s going on in the economy. Jobs are not coming back and I think people are looking for sources of income and attorneys are looking for sources of income,” said Sheryl Willert, managing director of Williams Kastner and a past president of DRI-The Voice of the Defense Bar.

Attorneys expected to continue to see large employment class actions in the coming years. They also expected companies to settle the vast majority of those lawsuits, as long as the economy remained stagnant and frustrated juries lurked.

“If the economic conditions remain roughly the same or even if they improve slightly, there’s going to be a lot of economic dislocation and a lot of vulnerability and pain. Some of those people are going to end up on juries. And that’s not a pretty thing for defendants,” Sanford said.

Here are the top 10 biggest employment verdicts and settlements of 2010:

1. Novartis Pharmaceutical Corp., $175 million

In May, a jury slapped Novartis with a $250 million verdict for discriminating against thousands of female sales representatives. Two months later, the drug giant agreed to settle with the plaintiffs for $175 million, the most ever paid to resolve an employment action, according to attorneys for the plaintiffs.

Under the terms of the agreement, Novartis will pay $152.5 million to cover back pay for more than 6,000 women who worked at the company between July 15, 2002, and July 14, 2010. The company will also invest $22.5 million to change its employment practices.

The suit, originally filed in 2004, alleged pervasive bias against female sales representatives, including discrimination against pregnant women, disparate pay and a culture that impeded female sales representatives’ promotion to management.

The plaintiffs are represented by Sanford Wittels & Heisler LLP and the Law Offices of Grant E. Morris Esq.

Novartis is represented by Vedder Price PC and Cravath Swaine & Moore LLP.

The case is Velez et al. v. Novartis Pharmaceutical Corp. et al., case number 04-9194, in the U.S. District Court for the Southern District of New York.

2. Wal-Mart Stores Inc., $86 million

Faced with a massive class of plaintiffs, Wal-Mart opted in May to pay $86 million to settle two lawsuits accusing the retail giant of failing to pay thousands of workers for vacation and personal time upon terminating their employment.

While Bentonville, Ark.-based Wal-Mart will pay up to $86 million, depending on the level of participation by the class — which could number as many as 232,000 — it will pay no less than $43 million, according to the settlement.

The proposed settlement class consists of all former California hourly and salaried associates, including those who worked at Sam’s Club and company distribution centers — except for truck drivers — whose employment with Wal-Mart ended after March 20, 2002.

Wal-Mart isn’t out of the woods on pay litigation yet. In December, the U.S. Supreme Court announced it would take up the retail giant’s appeal of an April 26 decision upholding class certification in the largest gender discrimination case in history.

The plaintiffs in the settled cases are represented by Marlin & Saltzman LLP, the Law Offices of Peter M. Hart and Bailey Pinney PC.

Wal-Mart is represented by Gibson Dunn & Crutcher LLP.

The cases are Smith et al. v. Wal-Mart Stores Inc., case number 06-cv-02069; and Ballard et al. v. Wal-Mart Stores Inc., case number 06-cv-05411, both in the U.S. District Court for the Northern District of California.

3. CBS Corp., Fox Entertainment Group Inc., National Broadcasting Co. Inc., $70 million

CBS, Fox and NBC were among the major players that agreed in January to fork over $70 million to settle claims that television networks, Hollywood studios and talent agencies discriminated against older television writers.

The settlement, which resolved 19 protracted cases, provided $70 million to two classes of plaintiffs comprised of professional and aspiring television writers.

The dispute dates back to 2000, when television writers filed a putative class action in federal court that was dismissed with leave to amend. Plaintiffs, however, favored state court and lodged a score of individual employment suits in 2002 alleging violation of California’s Fair Employment and Housing Act, the Unruh Civil Rights Act and the state’s unfair competition statute.

In 2006, the parties entered mediation proceedings, giving rise to the $70 million classwide settlement.

The 165 named plaintiffs and the settlement classes are represented Sprenger & Lang PLLC, Kator Parks & Weiser PLLC, Law Office of Daniel Wolf, Schwartz Steinsapir Dohrmann & Sommers LLP, the AARP Foundation Litigation, Katz Marshall & Banks LLP and Blecher & Collins.

Firms representing the defendants include Mitchell Silberberg & Knupp LLP, Epstein Turner & Song PC, Glaser Weil Fink Jacobs Howard & Shapiro LLP, Kaye Scholer LLP, Judith Salkow Shapiro PC, Morgan Lewis & Bockius LLP, Munger Tolles & Olson LLP, Murchison & Cumming LLP, Paul Hastings Janofsky & Walker LLP and Proskauer Rose LLP.

The case is In re: TV Writers Cases, case number BV 268 836, in the Superior Court of California for the County of Los Angeles.

4. BP Products North America Inc., $50.6 million

In August, BP agreed to pay a record $50.6 million in fines to the U.S. Occupational Safety and Health Administration to answer violations stemming from a 2005 explosion at its Texas City, Texas, refinery that killed 15 workers and injured 170 others.

Shortly after the explosion in 2005, BP agreed to pay $21 million in OSHA fines and identify and correct safety problems at the refinery.

OSHA conducted a follow-up investigation in 2009 and found that the problems had not been fixed, leading to 270 failure-to-abate citations and the $50.6 million fine in October. BP immediately contested them, arguing that the refinery was in full compliance with the previous settlement.

Under the terms of August’s agreement, BP agreed to spend at least $500 million to improve worker safety.

James A. Nolan Jr. of BP’s in-house legal department signed the OSHA agreement on the company’s behalf.

Richard Fairfax, deputy assistant secretary of labor for occupational safety and health, signed the agreement on behalf of OSHA.

The case is Solis v. BP Products North America Inc., case numbers 09-1695 and 09-1787, before the U.S. Occupational Safety and Health Review Commission.

5. Washington Mutual Inc., $49 million

In August, a federal judge gave approval to a $49 million settlement of a class action claiming that bankrupt Washington Mutual mismanaged its retirement plan\’s assets by investing in the failed bank’s own stock.

Under the terms of the agreement, first proposed by the plaintiffs in June, the settlement fund will be distributed to a class constituting of everyone who was a participant in or beneficiary of the company’s retirement plan at any time between October 2005 and September 2008, and whose individual plan accounts included investment in company stock.

The amended complaint, filed in February 2009, accused the defendants of breaching their fiduciary duties by failing to alert participants of its savings plan that WaMu’s stock, which made up much of the plan’s funds, was an imprudent investment because the bank relied too heavily on subprime mortgage loans and failed to maintain adequate risk management policies.

The plaintiffs are represented by Hagens Berman Sobol Shapiro LLP and Keller Rohrback LLP.

The defendants are represented by Perkins Coie LLP.

The case is In re: Washington Mutual Inc. ERISA Litigation, case number 07-cv-1874, in the U.S. District Court for the Western District of Washington.

6. Staples Inc., $42 million

Staples agreed in January to pay $42 million to resolve several wage-and-hour collective actions claiming the office supply vendor misclassified assistant store managers as exempt from federal overtime pay requirements.

The retailer has not admitted any wrongdoing in the settlement, which covers claims for damages going as far back as 2002 and more than 5,500 current and former Staples workers, the company said.

Staples argued that its “store labor model, which is based on a commitment to fair and respectful treatment of its associates, is fully compliant with applicable state and federal law.”

The plaintiffs are represented by Klafter Olsen & Lesser LLP, The Locks Law Firm, Mason LLP, Lite DePalma Greenberg LLC and Barroway Topaz Kessler Meltzer & Check LLP, among others. The first three firms also represent the plaintiffs in the Stillman litigation.

Staples is represented by Seyfarth Shaw LLP and McCarter & English LLP in both actions.

The cases are Stillman et al. v. Staples Inc., case number 2:07-cv-00849; and George v. Staples Inc., case number 2:08-cv-05746; both in the U.S. District Court for the District of New Jersey.

7. Pier 5 Hotel, $34 million

In July, a Baltimore judge slapped the owner of the city’s downtown Pier 5 Hotel with a $34 million verdict, awarding damages to 23 restaurant workers who claimed in a liability and negligence suit that they were poisoned by a 2008 carbon monoxide leak.

The verdict, reached in the Circuit Court for Baltimore City after a 13-week trial and two days of deliberations, far exceeded a $710,000-per-person, noneconomic damages cap imposed by Maryland law.

The carbon monoxide release caused the complete evacuation of the restaurant and hotel lobby at the Pier 5 complex on Feb. 2, 2008, according to the third amended complaint in the case, filed in December 2009.

Plaintiffs including Adrian Wynn and Myesha Maynor fell ill and called 911 that day, the suit claimed, and fire department tests showed dangerous levels of the colorless, odorless gas built up as a result of faulty boilers that provide hot water for the hotel and restaurant.

The complaint claimed the defendants “hard-wired” the boilers to keep them operating even if an exhaust fan that removed the dangerous gas from the premises stopped working.

The plaintiffs are represented by Murphy PA.

The defendants, both based in Maryland, are represented by Weinberg Wheeler Hudgins Gunn & Dial LLC.

The case is Wynn et al. v. MJ Harbor Hotel LLC et al., case number N 24-C-08-001376, in the Circuit Court for Baltimore City.

8. RGIS LLC, $27 million

Inventory services provider RGIS agreed in September to pay $27 million to settle a nationwide wage-and-hour collective action that included around 30,000 people.

Filed initially as two separate suits and later consolidated, the suit alleged that RGIS, a global provider of inventory services to a number of major retailers, violated the Fair Labor Standards Act and certain state laws in its compensation practices.

Among those violations, the plaintiffs alleged, were unpaid hours spent waiting for rides and traveling to remote sites where they provided inventory auditing services, according to an order filed in the case in February certifying four classes in the case.

In addition to the settlement fund approved, RGIS agreed to pay the employer’s share of all state and federal payroll taxes imposed by applicable law, including the employer’s share of the Federal Insurance Contributions Act tax and any federal and state unemployment tax due, with respect to the amounts treated as wages.

The plaintiffs are represented by Schneider Wallace Cottrell Brayton Konecky LLP, Goldstein Demchak Baller Borgen & Dardarian PC, Grady Schneider LLP and Bailey Pinney PC.

The defendant is represented by Drinker Biddle & Reath LLP.

The case is Wren et al. v. RGIS Inventory Specialists LLC et al., case number 06-5778, in the U.S. District Court for the Northern District of California.

9. Phillips & Jordan Inc., Evans Environmental & Geological Science & Management LLC , $24 million

In November, a federal judge signed off on a $24 million settlement resolving the claims of nearly 2,000 Staten Island landfill workers who handled debris collected from the World Trade Center site following the Sept. 11 terrorist attacks.

Of the aggregate settlement amount, two-thirds is guaranteed by contractors Phillips & Jordan and Evans Environmental & Geological Science & Management, which oversaw work at the Fresh Kills Landfill, while fellow defendant Taylor Recycling Facility LLC — which is responsible for the remaining portion of the settlement — had yet to reach a definitive agreement with the plaintiffs as of November.

These two agreements, coupled with other settlements reached with other defendants in recent weeks, raised the potential recovery amount for responders allegedly injured during the rescue, recovery and debris removal operations that followed the 9/11 attacks to nearly $750 million, according to a statement released by plaintiffs’ attorney Paul J. Napoli on Nov. 7.

The plaintiffs in the settlement approved Monday are represented by Napoli Bern Ripka LLP.

P&J is represented by McGivney & Kluger PC. EE&G is represented by Pillinger Miller Tarallo LLP.

The case is In re: World Trade Center Disaster Site Litigation, case number 1:21-mc-00100, in the U.S. District Court for the Southern District of New York.

10. Washington Mutual Inc., $20 million

Washington Mutual agreed in July to pay $20 million to settle a class action alleging the bank failed to notify employees that conversion to a cash balance formula diminished their pension benefits.

The settlement resolved claims lodged by five classes of plaintiffs belonging to five different WaMu pension plans, as well as to members of two subclasses consisting of employees of banks WaMu acquired in 1998 and 1999.

The plaintiffs alleged that prior to June 29, 2005, WaMu’s retirement plan discriminated based on age. The employees also claimed the pension plan had violated the procedural notification requirements of the Employee Retirement Income Security Act, which call for timely notifications and plan summaries.

Plaintiff argued that WaMu saved money when converting to a cash balance plan, forcing older workers who previously participated in an average pay pension to shoulder the difference.

The plaintiffs are represented by attorneys from Keller Rohrback LLP.

WaMu is represented by attorneys from Sidley Austin LLP and Davis Wright Tremaine LLP.

The case is Buus et al. v. WaMu Pension Plan et al., case number 2:07-cv-00903, in the U.S. District Court for the Western District of Washington.

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