The fastest-growing area of employment litigation in recent years has been wage-and-hour class actions, perhaps the biggest subset of which are lawsuits charging that white-collar employees have been misclassified as exempt from hourly wage and overtime calculations. Like many big employers, IBM has been hit with such suits from lawyers seeking to represent thousands of its employees. Information Week:
The good news for those workers is that IBM now plans to grant them so-called "non-exempt" status so they can collect overtime pay. The bad news: IBM will cut their base salaries by 15% to make up the difference, InformationWeek has learned.
The plan has been greeted with howls of protest from affected workers.
The payroll restructuring goes into effect Feb. 16 and applies to about 8,000 IBM employees classified as technical services and IT specialists, according to internal IBM documents reviewed by InformationWeek and sources at the computer maker.
The plan calls for a "15% base salary adjustment down across all units with eligibility for overtime," the documents state. The move is a direct response to the employee lawsuits -- at least one of which has apparently been settled.
"To avoid protracted litigation in an area of law widely seen as ambiguous, IBM chose to settle the case -- and to conduct a detailed review of the jobs in question," the documents state.
The giant tech company also intends to lobby for modernization of New Deal era wage-and-hour laws which might allow it to restore the previous compensation methods. Good luck with that -- even if it can show that most of the workers involved would themselves favor salaried rather than hourly status, the political clout of unions and trial lawyers has stymied efforts at legislative reform in the past. (Paul McDougall, Information Week/EETimes.com, Jan. 23)(cross-posted from Overlawyered).
SEC Commissioner Paul Atkins adds his voice in the WSJ to the large chorus of sensible people objecting to civil scheme liability:
In Stoneridge,the Supreme Court held that investors in one company cannot sue other companies for securities fraud unless those other companies did something that the plaintiffs specifically relied on when making investment decisions. The court warned that if it adopted the plaintiffs' concept of reliance, the "cause of action would reach the whole marketplace in which the issuing company does business." In other words, had Stoneridge gone the other way, plaintiffs would be able to reach into the pockets of customers, vendors and other firms that simply do business with companies that defraud investors.
Regardless, Stoneridge sparked an outcry from those arguing that in the name of "fairness" and "justice" someone should be forced to pay if the primary wrongdoer cannot. This outcry could lead to demands on Congress to rewrite the securities laws to give plaintiffs like those in Stoneridge what they could not get in court -- the ability to reach into a deep pocket regardless of culpability. But justice is not merely finding someone who can pay. Exposing one company to class-action lawsuits because another company defrauded its investors is not fair or just to shareholders who shoulder the burden of class-action settlements.
As the Wall St. Journal's Law Blog notes, it's getting better and better.
Jane Doe buys 800-thread count sheets. They don't feel right. She has the threads counted. Turns out there are two schools of thought about how to count threads. One method gives these Bed Bath and Beyond sheets 800. The other gives them 400. Upshot: class action. "A dry goods Enron", exclaims the plaintiffs' lawyer.
BB&B denies liability but settles anyway, blah blah blah. " “All purchasers between August 1, 2000 and November 9, 2007 of multi-ply sheet sets, pillowcases, down comforters, bedskirts, shams, duvets, and down pillows from Bed Bath & Beyond that were labeled as “plied,” “two-ply,” or “2-ply” shall be eligible to receive “a series of refunds and discount certificates.” The class representative gets $2,500. The lawyers receive $290,000.
My op-ed on the Supreme Court's denial of cert in the Enron class action is in today's New York Sun.
Richard Booth has a working paper on SSRN:
Continue reading Why securities litigation hurts investors (and how to fix it)
Legal Times/New York Law Journal; Human Events; and A.M. Best Wire all quote me. Also: Bainbridge again; Ribstein again; Alt & Walsh @ Heritage; Kirkendall; Portfolio.com; Lattman (interviewing Hal Scott); Nowicki.
Separately, the remand in Tellabs, a case used by the Chemerinskys of the world to demonstrate the supposed business-bias of the Court, has resulted in the Seventh Circuit refusing to dismiss the case notwithstanding the Court's decision. Judge Posner wrote the unanimous decision.
Lyle Roberts does such a good job summarizing with links, I'm just going to plagiarize his excellent post:
As it turns out, trials remain a risky business for both plaintiffs and defendants. Any thoughts that the JDS Uniphase defense verdict would lead to more securities class action trials will have to be tempered by yesterday's result in the Apollo Group trial. Bloomberg reports that the jury returned a plaintiff verdict that could lead to a payout of up to $277.5 million in damages.
Interestingly, the company has a web page on the litigation that includes a case summary, key documents, and a timeline of events. Comprehensive coverage of the trial and the jury verdict can be found at Securities Litigation Watch and The D&O Diary.
Continue reading One plaintiff win, one defense win in securities class action trials
SCOTUSblog has downloaded the opinion and has a good post. Steve Shapiro, who argued the case for the winning side, says in a press statement, “The Supreme Court today handed down a major victory for the U.S. economy and investor welfare. The Court understood that the trial lawyers’ theory of ‘scheme liability’ was simply a scheme to rake in billions of dollars for themselves at the expense of the investors they purported to represent.” Justice Kennedy:
In effect petitioner contends that in an efficient market investors rely not only upon the public statements relating to a security but also upon the transactions those statements reflect. Were this concept of reliance to be adopted, the implied cause of action would reach the whole marketplace in which the issuing company does business; and there is no authority for this rule.
Earlier on POL: Epstein, Frank, much else.
Continue reading Breaking: 5-3 decision against plaintiffs in Stoneridge v. Scientific-Atlanta
Says the NAACP complaint: "In 2004, African-American homeowners who received subprime mortgage loans from Defendants were over 30% more likely to be issued a higher-rate loan than Caucasian borrowers with the same qualifications." (¶ 1.) Thus, it concludes, the disparity "result[s] from a systematic and predatory targeting of African-Americans." (¶ 6.)
Similarly, Baltimore's suit argues that Wells Fargo is more likely to foreclose in African-American neighborhoods—and that suit does not even attempt to adjust for similar qualifications or finances, just alleging racial disparity.
Of course, there is a difference between being targeted for a subprime mortgage loan and accepting a subprime mortgage loan. And I don't believe that African-American homeowners were targeted for subprime mortgage loans because they were African-American. They were targeted because they were homeowners.
Between 2001 and 2005, I was a law-firm associate, high-income, making multiples of what I make today at a thinktank. And, like I am today, I was also white. And the minute my adjustable-rate mortgage was registered in the title books in 2001, I got several solicitations a week in the mail from fly-by-night mortgage brokers offering to refinance my mortgage with ludicrous financial products. (And when I made the mistake of investigating on-line options for switching to a fixed-rate mortgage in 2004, I also got several e-mails a day and phone-calls a month on the same basis to the point that I switched e-mail providers.)
Somehow, I resisted refinancing with a mortgage that was not favorable to me in the long run—I took a 5.25% fixed-rate instead. But I sure was targeted with subprime opportunities, especially as the real-estate prices in my neighborhood skyrocketed about 10% a year. And if, with my skin-color, income, education-level, and impeccable credit-score, I was targeted, so was every homeowner and their grandmother.
To the extent a statistical study says minorities were, ceteris paribus, more likely to receive unfavorable mortgages than whites, the study reflects a specification error, perhaps in failing to account for different levels of consumer education. Another possibility: there is a lot of state-by-state regulation of the mortgage industry. Are subprime mortgages more likely in states with high minority populations, for example? Are subprime mortgage brokers more likely to be aggressive in urban areas in states on the coasts where real estate prices were increasing faster than average, and those states correspond to states with high minority populations?
Note that the CRL study that has been driving the debate and highlighted in the NAACP suit finds that for many types of loans, whites were "disadvantaged" relative to Hispanics, which would seem to count against a racial explanation (unless one believes that bankers hold a racial animus against whites and towards Hispanics) and more towards a geographic explanation.
Note also the irony that these same defendants were accused of failing to offer loans to African-Americans just a few years ago. (See also Apr. 1.)
Finally, note that the NAACP complaint is legally frivolous in at least one respect because of the lack of standing in a federal court. Domino's Pizza, Inc. v. McDonald, 546 U.S. 470 (2006) (no § 1981 standing for third parties). (Baltimore brings no § 1981 claim.) Fair Housing Act standing is questionable, too, given the lack of allegation of injury to NAACP in particular, though that could be fairly easily rectified by an amended complaint, especially in the Ninth Circuit. Cf. Spann v. Colonial Vill., Inc., 899 F.2d 24 (D.C. Cir. 1990) ("[a]n organization cannot, of course, manufacture the injury necessary to maintain a suit from its expenditure of resources on that very suit") (R. Bader Ginsburg, J.); Fair Housing of Marin v. Combs, 285 F.3d 899, 902 (9th Cir. 2002). N.B. that there is an amended version of the complaint that may already fix these issues. NAACP v. Ameriquest Mortgage Co., No. 8:07-cv-00794-AG-AN (C.D. Cal.). For some reason, this is not available on PACER, so I haven't seen it.
Related: Jan. 8 (Krauss on Baltimore suit); Apr. 25 (me on third-party liability for subprime lending).
(Disclosure: I own less than $15,000 in stock in Citigroup, one of the defendants in the case.)
The Mayor can talk a pretty good game about the need to rein in destructive shareholder litigation. So why exactly is his NYC Employee Retirement System board contributing to the problem with a suit against Apple?