Sutherland Case Reveals Problems In Applying Effective Vindication Of Rights Analysis To Class Action Waivers

by BakerHostetler


In April 2010, Stephanie Sutherland (“Sutherland”) filed a putative class action against Ernst & Young under the Fair Labor Standards Act (“FLSA”) and New York law claiming that low-level accountants were improperly deprived of proper compensation for time worked in excess of 40 hours per week.

Ernst & Young filed a motion to dismiss or stay the proceedings and to compel arbitration of Sutherland’s claims on an individual basis under the Company’s dispute resolution procedure. Ultimately, District Judge Kimba Wood, relying on the Second Circuit’s decisions in Italian Colors Rest. v. Am. Express Travel Related Servs. Co. (“AMEX”) (the three AMEX decisions are discussed extensively in a March 5, 2013 article), denied Ernst & Young’s motion to compel because “the enormous costs and fees attendant to prosecuting her claim on an individual basis would effectively prohibit her from bringing suit at all.” The Sutherland case illustrates how a relatively modest wage and hour dispute can be portrayed as one requiring extensive attorneys and expert fees, only suitable for class handling.

The Second Circuit Appeal

An appeal resulted (Case No. 12-304), and in June 2012 the Equal Employment Opportunity Commission and Secretary of Labor filed an Amicus Brief supporting Appellee Sutherland in the Second Circuit.  The brief argued:

 (1) That Sutherland submitted undisputed evidence that she was unemployed, owed $35,000 in student loans and had no savings. Further, her attorney submitted a declaration stating that litigating whether junior accountants like Sutherland were exempt from the FLSA would cost over $160,000 in fees, plus arbitration costs of $6,000 and expert testimony of more than $33,500.

(2) That expert witnesses testimony “can be useful in some FLSA cases to determine whether a statutory exemption applies, and . . . the Secretary and courts have relied on expert testimony in such cases.”

(3) That Ernst & Young’s stipulations to pay costs and attorneys’ fees were insufficient because it was unclear if expert witness fees would be covered and that the Company stipulated to pay costs and fees only if Sutherland prevails.

But, under AMEX I, according to the Amici, Sutherland “must include the risk of losing and thereby not recovering any fees, in [her] evaluation of [her] suit’s potential costs.”  See AMEX I, 554 F.3d 300, 318 (2009). Hence, the Amici concluded that “Sutherland’s inability to advance substantial costs, . . . the [unwillingness] of her attorneys . . . to invest large amounts of potentially uncompensated time in a case where the Plaintiff has plausible claims . . . mean that Sutherland cannot effectively vindicate her FLSA rights by suing individually.” (Amicus Brief at 13).

The E & Y Response

Ernst & Young filed its response to the Amicus Brief on March 7, 2013.  In that response the Company first noted that Amici do not argue that the FLSA creates a substantive right to proceed as a class. (E&Y Response at 1). Next, the Company attacked the argument that arbitration would be cost prohibitive. Indeed, it pointed out that Sutherland would be fully compensated for all her alleged fees and costs, even those relating to unidentified (and perhaps unnecessary) expert fees based on its prior express stipulation. 

Then, Ernst & Young attacked the underpinnings of the Amici’s arguments one by one. The Company pointed out that, as the District Court recognized, it would pay all arbitration-related costs. The expert fees were challenged next. While Amici relied on $33,500 in expert fees they offered no rationale why those fees were needed.

The Amici termed experts “useful” in some FLSA cases not “necessary” in the Sutherland case. And, in the AMEX decision the Appellate Court found that “substantial expert witness costs” were “necessary” to prove the individual anti-trust tying claims. AMEX III, 667 F.3d 204, 218 (2012). Ernst & Young also pointed out that none of the FLSA cases cited by the Amici considered that the expert evidence was “necessary.” Sutherland’s proper classification “will be determined ‘by examining [her] actual job characteristics and duties’ not by expert analysis.” (E&Y Response at 4).

The need for the “risk of losing” consideration, was also challenged by the Company. Amici argued that even if Sutherland recovered all her fees and costs it was insufficient because she also had to consider the fact that one might lose. Ernst & Young responded that this AMEX III dicta did not overturn established authority holding that statutory fee shifting provisions enable a plaintiff to secure representation even when the potential recover is small. Attorneys do pursue individual wage and hour claims seeking a modest monetary recovery because of such fee shifting.

And, her attorney’s declaration stating that he would not represent her in an individual action is insufficient to avoid a class waiver. If not, according to the Company, “virtually any plaintiff, in any type of case, could assemble a similar record and avoid arbitration.” (E&Y Response at 6). AMEX does not permit avoidance of class action waiver “’simply by manufacturing an affidavit or choosing pricey attorneys’ or engaging unnecessary experts”. Id. Reading AMEX that broadly would nullify the purpose of the Federal Arbitration Act (“FAA”), to “ensur[e] that private arbitration agreements are enforced according to their terms”. AT&T Mobility v. Concepcion, 131 S. Ct. 1740, 1748 (2011).

In the final analysis, the Sutherland case most aptly illustrates the cost, delay and manipulation that can surround the application of the effective vindication of federal rights doctrine. These ramifications can eliminate any certainty in the application of an arbitration agreement, run counter to the intent of the FAA and second guess the legislative wisdom in enacting fee shifting provisions. All these concerns likely will be addressed in the U.S. Supreme Court’s Opinion in the AMEX case itself which was argued on February 27, 2013.

The Bottom Line:

The Sutherland case illustrates how even a modest employment case can be impacted by the “effective vindication of rights” doctrine. Each case can result in a threshold inquiry into claims and related costs where plaintiff’s counsel, experts and judicial analysis can dictate varying results. Thankfully, some guidance likely will come from the U.S. Supreme Court’s upcoming AMEX decision.

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