Law360 (January 3, 2022, 12:03 PM EST) — The COVID-19 pandemic that swept the world and its courts in 2020 continued to drive New Jersey litigation throughout 2021, filling up dockets with coronavirus-related complaints that included challenges to Garden State employee-testing mandates and public college vaccination requirements.

The bankruptcy court also heated up with two notable matters driven by massive tort litigation: a Johnson & Johnson unit and a Roman Catholic diocese each filed Chapter 11 petitions amid a barrage of lawsuits by cancer patients and clergy abuse accusers, respectively.

Employment law was another active sector as an increasing number of wage earners fought their alleged misclassification as independent contractors. The New Jersey Supreme Court will tackle a matter in that realm brought by a Weichert real estate agent, an outlier in a sea of misclassification plaintiffs typically engaged in transportation work.

Here are the top New Jersey legal sagas to watch in 2022.

Johnson & Johnson Talc Claims Spinoff Under Fire For Ch. 11

In a closely watched Chapter 11 saga, a Johnson & Johnson unit, created to shoulder massive tort liability from talcum powder users who developed cancer, has come under fire for its controversial path to insolvency.

Under a divisional merger process endorsed by Texas business law, J&J spun off a new corporate entity, LTL Management LLC, and assigned it with the litigation alleging asbestos-tainted baby powder caused the claimants’ ailments.

LTL then filed Chapter 11 in what claimants consider a bad-faith move to steer their potential recovery away from the jury system and into the bankruptcy claims process, potentially undercutting the value of their recoveries. The spinoff unit is currently facing a motion by the claimants to dismiss the Chapter 11 case. It is also facing a bid by the U.S. Trustee’s Office’s to appoint an examiner to probe J&J’s use of the divisional merger just prior to their bankruptcy filing.

One key question is how J&J went about determining the necessary capitalization of LTL, said David Prager, a Kroll LLC managing director who leads the firm’s restructuring advisory practice in the U.S.

“If [the company] utilized independent advisors and conducted a full valuation process before undertaking the transaction, then the filing may survive,” Prager said, adding that the question of remedies if the assigned values were inappropriate will remain.

“However, if the procedures followed were perfunctory, the ramifications could be much more draconian,” he noted.

J&J has defended its strategy as an efficient may to manage the tort liability and has noted that claimants are leaving things up to chance in the jury system. Sullivan & Worcester LLP partner Jeffrey R. Gleit, leader of his firm’s bankruptcy and restructuring team, thinks that position might have some sway with the court.

“Bankruptcy is an appropriate forum to handle mass tort claims and should result in an equitable recovery to the claimants as opposed to the potentially disparate treatment that could occur with piecemeal litigation throughout the country,” Gleit said.

The case is In re: LTL Management LLC, case number 21-30589, in the U.S. Bankruptcy Court for the District of New Jersey.

Judiciary, Education Workers Strike Back at Virus Testing Rule

As New Jersey courts and schools began reopening for in-person operations amid the drop in COVID-19 cases and hospitalizations, their employees were met with requirements that they show proof of coronavirus vaccination or submit to regular testing, or face penalties.

A bevy of the workers, employed by the state that reigned as one of nation’s top two coronavirus hot spots, responded with a constitutional challenge in federal court, alleging the rules violate the right to be free of forced medical testing and surveillance.

The odds are against the employees given decisions in the First, Second, Fifth and Sixth circuits that have been “largely deferential” to the government’s authority to hand down the rules, according to employment law attorney Michael R. Futterman of MARC Law.

Jurisprudence on the topic dates back to 1905, when the U.S. Supreme Court handed down its landmark decision in Jacobson v. Commonwealth of Massachusetts, which upheld a town’s vaccination mandate in the face of a smallpox outbreak in furtherance of public health, Futterman noted.

“I expect this trend to continue in [the current case], as vaccine mandates have been held constitutional for over 100 years,” Futterman told Law360.

The case is Kathleen Wright-Gottshall et al. v. State of New Jersey et al., case number 3:21-cv-18954, in the U.S. District Court for the District of New Jersey.

College Students Say Vaccine Requirements Fail Constitution Test

Students at public colleges in the Garden State were likewise met with pandemic-prompted requirements, only this set of rules made vaccination a condition of enrollment at Rutgers, the state university of New Jersey, and The College of New Jersey.

Their lawsuits against the schools also raise constitutional challenges against the policies, while the schools have pointed to the Jacobson ruling. McDermott Will & Emery LLP employment partner Michelle Strowhiro noted that the Jacobson case has repeatedly been applied by courts upholding vaccination requirements.

“Now, with the delta and omicron variants posing new and potentially greater risks for SARS-CoV-2 viral spread than ever, the colleges have a strong position that their vaccine mandates meet the Jacobson standard of bearing a real and substantial relation to protecting public health and safety, and therefore that the mandates are constitutional,” Strowhiro said.

The fact that the vaccines have FDA approval eliminates any lingering questions in that respect about the legitimacy of the mandates, noted Mark D. Kruthers, a director at Fennemore Craig PC.

“However, that could change if individual states take action to prevent the universities from enforcing vaccine mandates,” Kruthers said.

The cases are Children’s Health Defense Inc. et al. v. Rutgers, the State University of New Jersey et al., case number 3:21-cv-15333, and Messina et al. v. The College of New Jersey et al., case number 3:21-cv-17576, both in the U.S. District Court for the District of New Jersey.

Bankrupt Catholic Diocese Fights Survivors over Abuse Claims

Dozens of lawsuits accusing clergy of sex abuse drove a Roman Catholic diocese in southern New Jersey into bankruptcy court, where the survivors’ compensation has become the most contentious issue plaguing the Chapter 11 case.

The confirmation of the plan has been delayed amid motions by the diocese to declare many of its assets off limits, while the claimants have balked at the diocese’s attempts to shield funds. The parties spent hours in closed-door negotiations recently amid the diocese’s offer, which increased from $26 million to $53 million after its insurers agreed to pitch in.

The fact that bankruptcy courts are courts of equity tilts in favor of the claimants, according to insurance trial attorney Tim Burns of Burns Bowen Bair LLP. He predicts the court will “heavily scrutinize a debtor’s true ability to pay its creditors, including the sexual abuse survivors that it has injured.”

“The likely result is that the diocese will not get away with its current position, but will have to produce more compensation for the survivors. These issues tend to be negotiated and the [Diocese of] Camden survivors appear to be gaining the upper hand,” Burns said.

The case is In re: The Diocese of Camden, New Jersey, case number 1:20-bk-21257, in the U.S. Bankruptcy Court for the District of New Jersey.

NJ Justices to Mull Real Estate Agent Job Classification

The misclassification of employees as independent contractors by employers seeking to dodge the cost of worker benefits and other perks has fueled a slew of class action lawsuits and debate over how, exactly, to determine the proper designation.

The matters have intrigued the Supreme Court of the State of New Jersey, which has agreed to decide whether the so-called ABC test for determining if a worker is an employee or a free agent applies to real estate agents. The ABC test tasks courts with considering, among other things, how much control an employer has over the worker’s duties.

The matter examines the relationship between two New Jersey statutes: the Unemployment Compensation Law and the Wage Payment Law, noted Andrew S. Burns, chair of Einhorn Barbarito Frost & Botwinick PC’s commercial litigation and employment practices.

The state’s compensation law includes a statutory exemption from the employment designation for real estate salespersons. The issue driving the matter before the justices is whether the statutory exemption should preclude the application of the ABC test to real estate agents under the Wage Payment Law, according to Berns.

“Thus, if the Supreme Court categorizes these individuals as employees, it will change the entire business model utilized by large real estate entities in the sale of residential and commercial real estate,” Berns said.

The case is James Kennedy II vs. Weichert Co., case number 086060, in the Supreme Court of the State of New Jersey.

–Editing by Lakshna Mehta.

By Jeff Bowen

The Biometric Information Privacy Act (BIPA), a 2008 Illinois law governing the collection, maintenance and disclosure of biometric data, has generated thorny jurisdictional issues for years.  The statue places limitations on the collection and use of such data, mandates public disclosure of a plan governing the scope of use, and requires written consent from individuals whose data is obtained.  BIPA also provides a private right of action for persons aggrieved by violation of those requirements.  Under the 2016 Supreme Court case Spokeo v. Robins, 136 S. Ct. 1540 (2016), the harm alleged under a data privacy statute like this must be both concrete and particularized in order to give rise to standing in federal court.  District courts applying Spokeo to BIPA claims have reached quite different results, with some allowing the claims to proceed and others remanding to state court or dismissing the claims outright.  Earlier this year, the Seventh Circuit provided significant guidance as to the type of BIPA claims that may trigger federal jurisdiction, with individualized informational injury potentially meeting the standing threshold but violation of general disclosure requirements falling short.  Bryant v. Compass Group USA, Inc., 958 F.3d 617 (7th Cir. 2020).  The Bryant decision provides important information for both defense counsel and plaintiffs, though several other issues remain in play, such as the scope of preemption under statutes governing collective bargaining agreements and the availability of insurance coverage.

BIPA and Early Federal Court Decisions

BIPA subjects companies to potential liability for collecting, maintaining, or disclosing the biometric information of individuals without certain required disclosures and written consent.  740 Ill. Comp. Stat. § 14/1 et seq. (2008).  “Biometric identifier” includes a “retina or iris scan, fingerprint, voiceprint, or scan of hand or face geometry,” while “biometric information” includes any information based on a biometric identifier that is used to identify an individual.  Id. § 10. The Act requires publication of a retention schedule and guidelines for “permanently destroying biometric identifiers and biometric information.” Id. § 15(a).  BIPA also prohibits the collection or receipt of biometric information without informing the subject of such collection and its purpose and then obtaining written consent.  Id. § 15(b) Other provisions address the sale, disclosure, and retention of biometric information.  Some BIPA claims involve biometric data collected from customers, such as through ticket sales or vending machines.  Other cases involve claims brought by employees, whose employers use biometric data to track working hours or restrict access to certain hazardous or sensitive materials.

The Illinois supreme court has held that individuals who have suffered no injury beyond the violation of statutory rights under BIPA may still present a claim. Rosenbach v. Six Flags Ent. Corp., 129 N.E.3d 1197 (Ill. 2019).  In Rosenbach, the claimant’s 14-year-old son had provided fingerprint data in order to obtain a season pass to the amusement park.  She alleged that she had not received any information about the collection of his fingerprints, nor had she provided written consent, and she sued on behalf of a purported class of similarly situated park attendees.  The defendants argued that she had alleged no actual or threatened injury, but the court held that violation of BIPA obligations “constitutes an invasion, impairment, or denial of the statutory rights of any person or customer whose biometric identifier or biometric information is subject to the breach.”  Id. at 1206. Because such a person is “aggrieved” within the meaning of the provision creating a private right of action, she is “entitled to seek recovery” without pleading any additional consequences. Id.

The availability of this private right of action gives rise to important standing questions in federal court, even when parties have satisfied other diversity requirements.  Under Spokeo v. Robins, 136 S. Ct. 1540 (2016), claimants must allege an injury in fact that is both concrete and particularized in order to satisfy standing requirements.  In that case, the Ninth Circuit had held that a search engine’s alleged publication of inaccurate information about the plaintiff in violation of the Fair Credit Reporting Act was sufficiently individualized to confer standing, but the Supreme Court reversed, remanding the case for determination of whether the injury was also sufficiently concrete.  Id. at 1548-49.  The Court stressed that the alleged injury need not be tangible in order to be concrete, but nor could it be a bare procedural violation.  In the wake of Spokeo, violations of purely statutory rights may give rise to justiciable claims in state court, but federal jurisdiction requires specific allegations of concrete and particularized harm to the individual claimant.

Courts must therefore decide whether alleged violations of BIPA satisfy the Spokeo standard, and decisions rendered over the past several years reflect a variety of conclusions.  Several district courts recognized allegations of concrete and particularized harm.  One court found standing based on the sale of human resources software that collected and stored biometric data on employees without disclosure or consent.  Figueroa v. Kronos Inc., 2020 WL 1848206 (N.D. Ill. Apr. 13, 2020).  Another found standing based on the requirement that truck drivers provide fingerprint data in order to gain access to freight at railway terminals, which was obtained and disseminated without consent.  Rogers v. CSX Intermodal Terminals, 409 F. Supp. 3d 612 (N.D. Ill. 2019).  See also Namuwonge v. Kronos, Inc., 418 F.Supp.3d 279 (N.D. Ill. 2019) (finding standing under BIPA § 15(a) for failure to publish a data retention schedule but dismissing other claims for insufficiency of allegations).

By contrast, another court held that alleged anxiety over whether an employer would ever delete biometric information did not confer standing due to the absence of alleged concrete harm.  McGinnis v. U.S. Cold Storage, Inc., 382 F.Supp.3d 813 (N.D. Ill. 2019).  In Aguilar v. Rexnord, No. 17 CV 9019, 2018 WL 3239715 (N.D. Ill. July 3, 2018), the court found that employees forced to clock in through fingerprints obtained without written consent had failed to allege the necessary concrete injury.  Similarly, the creation and retention of unique face templates did not in themselves cause the concrete injury required to establish standing.  Rivera v. Google, Inc., 366 F. Supp. 3d 998 (N.D. Ill. 2018).  See also Heard v. Becton, Dickinson & Co., 440 F. Supp. 3d 960 (N.D. Ill. 2020) (finding insufficient allegations of control by defendant over collected data); Colon v. Dynacast, 2019 WL 5536834 (N.D. Ill. Oct. 17, 2019) (finding lack of standing given absence of allegations that data had been collected without knowledge of the subjects).

At the circuit court level, the Seventh Circuit agreed that union airline workers had satisfied standing requirements based on an obligation to clock in and out with biometric data.  Miller v. Southwest Airlines Co., 926 F.3d 898 (7th Cir. 2019).  The court noted that the need to bargain over employee consent or over the means of tracking time might affect the conditions of employment and that the employees had also alleged a heightened risk of disclosure. The Ninth Circuit also held that the use of facial-recognition technology by Facebook without informed consent satisfied standing requirements because plaintiffs alleged invasion of privacy.  Patel v. Facebook, Inc., 932 F.3d 1264 (9th Cir. 2019).  The Second Circuit, by contrast, held that the video game player plaintiff had effectively consented to the collection of his biometric data by permitting a lengthy scan of his face and proceeding with the creation of a game avatar. Santana v. Take-Two Interactive Software, Inc., 717 F. App’x 12 (2d Cir. 2017).

Bryant v. Compass Group

The Seventh Circuit attempted to synthesize these decisions and provide guidance on jurisdictional concerns in Bryant v. Compass Group USA, Inc., 958 F.3d 617 (7th Cir. 2020).  Bryant used a vending machine in her company break room that required each employee to provide a fingerprint, which was then linked to a payment account set up by that employee.  Id. at 619.  Bryant alleged that her employer instructed employees to provide a fingerprint, and she did so.  She generally understood why her biometric data was being collected but alleged that the lack of disclosure by the machine operator prohibited her from giving informed written consent.  She sued on behalf of a class of similarly situated people, alleging violation of BIPA §15(a) for failure to provide a public schedule of data retention and guidelines and violation of §15(b) for failure to inform her about the collection, use, and storage of her data and failure to obtain her written consent. Bryant filed in state court, but the defendant removed to federal court under the Class Action Fairness Act.  Bryant sought remand to state court, leaving the defendant to argue that the claimant had standing to pursue her claims in federal court.  The panel ultimately concluded that Bryant lacked standing to bring her §15(a) claim but held that she could proceed with her §15(b) claim.

The Bryant panel distinguished between the vindication of public rights and redress for violation of the private rights of an individual plaintiff, relying in part on the Spokeo concurrence penned by Justice Thomas.  While the §15(a) obligation was owed to the public generally, the court had “no trouble concluding that Bryant was asserting a violation of her own rights—her fingerprints, her private information” under §15(b) and that this was “enough to show injury-in-fact without further tangible consequences.”  Id. at 624.  After all, she had alleged invasion of her “private domain,” similar in many ways to an act of trespass.

The court further noted that the alleged inability to give informed written consent satisfied Seventh Circuit case law on standing for informational injury, which requires that the failure to disclose information impairs the “ability to use the information in a way the statute envisioned.”  Id.  Thus, in Groshek v. Time Warner Cable, 865 F.3d 884, (7th Cir. 2018), the plaintiff did not allege concrete injury because he merely received the required information in a larger document, rather than in a stand-alone disclosure, whereas in Robertson v. Allied Solutions, LLC, 902 F.3d 690 (7th Cir. 2018), the plaintiff alleged concrete injury because the failure to provide her with a copy of her background report meant she could not challenge the recission of her employment offer.  In Bryant, too, the failure to provide substantive information about the use and storage of her personal data meant that Bryant could not give the informed consent required by the statute.

In the wake of Bryant, district courts have found no standing for similar general disclosure claims but potential standing for failure to provide information necessary for informed consent. In Cothron v. White Castle System, No. 19 CV 00382, 2020 WL 3250706 (N.D. Ill. June 16, 2020), the plaintiff alleged that White Castle required her to provide a fingerprint in order to access the computer system.  Citing Bryant, the court permitted the claims under §§15(b) & (d) to proceed because they alleged failure to provide the information necessary to permit informed consent. In Kloss v. Acuant, Inc., No. 19 C 6353, 2020 WL 2571901 (N.D. Ill. May 21, 2020), the court remanded § 15(a) claims for lack of standing in light of Bryant and dismissed other claims for failure to allege sufficient facts in support.

Other BIPA Jurisdictional Issues

Bryant resolved many significant jurisdictional questions, but BIPA, of course, will likely continue to generate substantial litigation.  Although Bryant set forth the type of claims that may give rise to standing in federal court, allegations of an individual informational injury do not guarantee federal jurisdiction.  For example, employees subject to collective bargaining agreements governed by state or federal statutes may need to bring their claims before an adjustment board or similar entity.  Even though the employees in Miller v. Southwest Airlines, 926 F.3d 898 (7th Cir. 2019), alleged sufficient concrete and particularized harm to confer standing, the Railway Labor Act required their claims to be heard by an adjustment board.  Moreover, the scope of claims that must be submitted to such an entity continues to generate litigation.  One court found that that § 301 of the Labor Management Relations Act preempted BIPA claims arising after the collective bargaining agreement governing the plaintiff’s employment went into effect but permitted the plaintiff to proceed with claims relating to alleged violations prior to that date.  Peatry v. Bimbo Bakeries USA, Inc., 2020 WL 919202 (N.D. Ill. Feb. 26, 2020).  See also Darty v. Columbia Rehabilitation and Nursing Ctr., 2020 WL 3447779 N.D. Ill. June 24, 2020) (agreeing that the LMRA preempted BIPA claims but noting that the named plaintiff was not herself a member of the union, thus requiring remand to state court).  Another court found that the Illinois Worker Compensation Act only preempted accidental claims, thereby permitting an assembly worker’s BIPA claims against the manufacturer to proceed. Treadwell v. Power Solutions Intl., 427 F.Supp.3d 984 (N.D. Ill. 2019).

Similarly, the Bryant decision does not preclude enforcement of valid arbitration clauses, and plaintiffs whose claims fall within the scope of an employment arbitration agreement may need to arbitrate those claims. In Crooms v. Southwest Airlines Co., — F.Supp.3d —-2020 WL 2404878 (N.D. Ill. May 12, 2020), for example, the court held that all of the plaintiff ramp agents and supervisors were subject to arbitration of their claims under their employment agreement.  Three of the plaintiffs, however, needed to bring their claims before the Railway Labor Board, as the Railway Labor Act preempted immediate arbitration of those claims.

Another lingering issue involves the location of the injury and any potential extraterritorial application of the statute. Thus, the maker of a cloud-based point-of-sale system that allowed restaurants and other businesses to track employee time through a biometric finger scanner challenged the extraterritorial application of the statute.  Neals v. PAR Technology Corp., 419 F.Supp.3d 1088 (N.D. Ill. Dec. 18, 2019).  The district court rejected the extraterritoriality claim but noted the absence of allegations that the plaintiff restaurant was located in Illinois. The court therefore dismissed the complaint but with leave to amend.

Insurance Coverage For BIPA Claims

Finally, given the number of BIPA claims in recent years, potential insurance coverage for those claims has also become an issue. Depending on the nature of the claims, companies facing exposure under BIPA may turn to several different types of insurance coverage. Cyber policies may respond to a claim based on the unauthorized collection or release of biometric data, depending on the policy definitions of data and the presence of employment related exclusions.  General liability policies might cover BIPA claims under the “personal and advertising injury” coverage, though any exclusions related to loss of data or to statutory violations could come into play.  Employment practices liability policies could respond to claims brought by employees, though, again, potential exclusions would need to be considered.

Some of these insurance claims have already appeared in federal litigation, though very few decisions have been rendered.  In 2018, Zurich filed a declaratory judgment action after its policyholder was sued in Illinois for allegedly using fingerprint data to regulate access to stored medications. Zurich Am. Ins. Co. v. Omnicell, No. 3:18-cv-05345, 2018 WL 4198057 (Compl.) (N.D. Cal. Aug. 30, 2018).  The insurer pointed to exclusions in its general liability policy for statutory violations, but no decision was reached because the case was stayed pending resolution of the underlying matter.  Zurich Am. Ins. Co. v. Omnicell, No. 3:18-cv-05345, 2019 WL 570760 (N.D. Cal. Feb. 12, 2019).  In another recent case, the issuer of a multi-peril policy filed a declaratory judgment action in Illinois federal court, arguing that its employment practices policy excluded liability for violations of law, and that the other coverage forms issued, including general liability and professional liability, all contained exclusions for injuries to employees. Church Mut. Ins. Co. v. Triad Senior Living Inc., Case No. 1:19-cv-07599 (Compl.) (N.D. Ill. Nov. 18, 2019).  The case was voluntarily dismissed without prejudice before any decision was entered.  Finally, another insurer recently filed a declaratory judgment action arguing that its general liability policy excluded employment practices involving the collection and use of data.  Am. Family Mut. Ins. Co. S.I. v. Schmitt South Eola LLC, No. 1:20-cv-01872 (compl.) (N.D. Ill. Mar. 19, 2020) The underlying case alleged that a MacDonald’s restaurant violated BIPA by requiring employees to scan their fingerprints and then sharing that biometric data within the nationwide McDonald’s computer system.

Outside of federal court, one Illinois court held that an insurer had a duty to defend a BIPA claim under a general liability policy. West Bend Mut. Ins. Co. v. Krishna Schaumburg Tan Inc., No. 1-19-1834, 2020 IL App (1st) 191834, 2020 WL 1330494 (Ill. App. Mar. 13, 2020) (unpub).  The underlying case alleged that the defendant required customers to provide fingerprint data along with membership and then automatically entered that data in a national L.A. Tan database. The court concluded that publication to one third-party vendor was sufficient to constitute “publication” under the policy, thus triggering potential coverage under the advertising and personally liability coverage.  Id at ¶¶ 34-37.  The court also held that an exclusion for statutory violations did not apply to BIPA claims because it was limited to statutes governing certain methods of communication.  Id. at ¶¶42-43.  Although this decision was rendered in an Illinois appellate court, federal practitioners can expect the body of case law relating to insurance coverage for BIPA claims to continue to expand.

 

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