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Chipotle’s Mandatory Arbitration Agreements Are Backfiring Spectacularly

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A few years ago, the burrito chain Chipotle began requiring employees to sign mandatory arbitration agreements. The idea was to force the workers to give up their right to sue collectively over wage theft or workplace discrimination.

Chipotle’s plan seems to have worked out a little too well: The company is now facing a flood of arbitration cases from former employees determined to win the backpay they claim they are owed.

Facing potentially huge liabilities, Chipotle recently asked a federal judge to block the workers from seeking arbitration with lawyers who’d represented them in court ― despite the fact Chipotle had forced arbitration upon its workers via agreements they had to sign when they were hired.

The judge denied that request, calling Chipotle’s actions “unseemly.”

“This is their worst-case scenario, apparently ― and the scenario they asked for,” said Kent Williams, one of the attorneys representing the former Chipotle employees.

The mess all goes back to a Supreme Court ruling that was supposed to be a gift to powerful employers like Chipotle.

In May, the court ruled 5-4 in Epic Systems v. Lewis that it is legal for employers to require workers to sign arbitration agreements as a condition of employment. By signing them, workers agree they won’t sue the employer in class- or collective-action lawsuits. Instead, the workers will have to take any claims individually to arbitration, where they have no collective power.

The ruling was one of the most contentious of the court’s term, with all four liberal justices dissenting, including Justice Ruth Bader Ginsburg, who called the decision “egregiously wrong.” Employer lobbies cheered the ruling, while employee advocates said it would strip legal recourse from some of the most vulnerable workers.

One reason employers prefer arbitration over court is that workers are less likely to bring a claim at all. A single person trying to recoup back wages worth a few hundred dollars is going to have a hard time finding an attorney willing to take an arbitration case with so little at stake. Big lawsuits, by contrast, allow hundreds or even thousands of workers to band together against the company in pursuit of large claims. 

This is their worst-case scenario, apparently ― and the scenario they asked for.
Kent Williams, attorney

With the Epic Systems v. Lewis ruling, the Supreme Court immediately legitimized the arbitration clause Chipotle had started slipping into its employee welcome packet in 2014. The company’s chief compliance officer, David Gottlieb, explained in court how these supposedly voluntary agreements work:

“[I]f you choose not to agree to the arbitration agreement, for example, once you have been given notice and an opportunity to look at it, read it, ask any questions, download it, save it, whatever you want to do ― if you don’t, then you don’t have to be an employee,” Gottlieb said.

When the Epic ruling came down, Chipotle was dealing with a collective action lawsuit involving roughly 10,000 current and former workers who said Chipotle systematically stiffed them on pay, violating minimum wage and overtime regulations. But nearly 3,000 of those workers had signed arbitration agreements.

As HuffPost reported in August, the judge in the case, John Kane, ruled that the Epic decision compelled him to expel those plaintiffs from the suit. That was precisely the outcome Chipotle had been hoping for.

But instead of taking their claims and going home, more than 150 of those workers filed requests for arbitration.

Unlike a collective- or class-action lawsuit, all of those claims would be administered separately, and they could get very expensive for Chipotle. A single case can run tens of thousands of dollars in lawyers fees and payments to the arbitrator ― in this case, JAMS. The cost of litigating can dwarf the actual damages.

“If you start running the numbers on this thing, arbitration costs could top $30,000 or $50,000 [each],” said Williams. If hundreds or thousands of workers pursue cases, “You get up to, like, tens if not hundreds of millions of dollars very quickly, just in arbitration expenses.”

Under the arbitration rules, Williams said, the cases would be heard in the county where Chipotle last employed the worker in question, meaning the claims would be spread out all over the country. Chipotle has roughly 2,400 locations, according to its latest SEC filings. If so many cases were to move forward, they would present a logistical nightmare for the company.

Williams said Chipotle has so far refused to pay its share of the arbitration filing fee, which amounts to $1,100 per case, preventing those cases from proceeding. A similar situation has been unfolding for Uber drivers who also signed arbitration agreements. As Gizmodo reported earlier this month, some 12,000 drivers are pursuing arbitration with the ride-sharing giant. Like Chipotle, Uber has not paid the filing fees required in those cases.

A JAMS spokesperson declined to comment. Chipotle, which has said in the past that it does not comment on litigation, didn’t respond to emails about the matter.

But Chipotle’s court filings say plenty. The company wasn’t satisfied with getting nearly 3,000 mostly low-wage workers booted from a large lawsuit. It asked Kane, the judge, to forbid those workers from pursuing arbitration with Williams and his team as their attorneys. Their rationale: Because the workers had signed arbitration agreements, they never should have received notice about the collective-action lawsuit and become clients of Williams and his colleagues.

Kane rejected that argument, essentially saying that whatever happens in arbitration isn’t his court’s business. But once the arbitration filings started coming in, Chipotle appealed. “The arbitrations are going forward,” the company bemoaned in its filing, “causing immediate harm to Chipotle.”

The judge ruled against Chipotle yet again, and leveled a withering critique of the company’s legal strategy: “Chipotle’s attempts to delay and obfuscate the claims of the Arbitration Plaintiffs in both the courts and in arbitration (the forum to which it required these employees to submit) are unseemly.”

If so many arbitration cases were to move forward, they would present a logistical nightmare for Chipotle.

The pile of arbitration claims coming at Chipotle is pretty unique. It normally wouldn’t be worthwhile for a lawyer to pursue so many individual cases with modest claims, but Williams’ team and the workers had already built their case through the collective-action lawsuit. Ordinarily, Williams acknowledges, these workers probably wouldn’t have found lawyers to pursue arbitration for the $1,000 they believe they are owed.

In other words, mandatory arbitration will probably work out well for Chipotle in the long run, even if the company faces a potential legal debacle right now.

Companies like Chipotle like to say they prefer arbitration to the courts because it’s more efficient and better for both parties. But Chipotle’s resistance to arbitrating these claims ― after steering workers into arbitration ― suggests its policy was never really about fairness and efficiency, as Kane noted in a recent order.

“Congesting the federal courts with countless appeals to prolong arbitration proceedings for numerous employees provides no benefit to the public and flouts the efficient resolution Chipotle professes to seek,” the judge scolded.

Although Chipotle hasn’t paid filing fees yet, Williams said he plans to continue bringing more arbitration cases for any worker who wants to pursue arbitration after being kicked out of the lawsuit. After the new year, he hopes to file them in batches of 100 every couple of weeks, for as long as they come in.

“Everybody that we file for has individually retained us. We’ve talked to them and interviewed them,” Williams said. “These are all solid claims, and they’re not going away.”

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U.S. Charges Chinese Tech Giant Huawei, Top Executive

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WASHINGTON (AP) — The U.S. Justice Department is filing charges against Chinese tech giant Huawei.

A 13-count indictment was unsealed Monday in New York charging Huawei, two of its affiliates and a top executive at the company.

The charges include bank fraud, conspiracy to commit wire fraud, and violating the International Emergency Economic Powers Act.

A separate case filed in Washington state charges Huawei with stealing trade secrets from T-Mobile.

Meng Wanzhou, the company’s chief financial officer, was arrested in Canada on Dec. 1. Prosecutors allege she committed fraud by misleading American banks about Huawei’s business deals in Iran.

Prosecutors charge Huawei used a Hong Kong shell company to sell equipment in Iran in violation of U.S. sanctions.

Huawei is the world’s biggest supplier of network gear used by phone and internet companies.

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24 Million Mortgage And Bank Loan Documents Leaked Online

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A trove of more than 24 million financial and banking documents, representing tens of thousands of loans and mortgages from some of the biggest banks in the U.S., has been found online after a server security lapse.

The server, running an Elasticsearch database, had more than a decade’s worth of data, containing loan and mortgage agreements, repayment schedules and other highly sensitive financial and tax documents that reveal an intimate insight into a person’s financial life.

But it wasn’t protected with a password, allowing anyone to access and read the massive cache of documents.

It’s believed that the database was only exposed for two weeks — but long enough for independent security researcher Bob Diachenko to find the data. At first glance, it wasn’t immediately known who owned the data. After we inquired with several banks whose customers information was found on the server, the database was shut down on January 15.

With help from TechCrunch, the leak was traced back to Ascension, a data and analytics company for the financial industry, based in Fort Worth, Texas. The company provides data analysis and portfolio valuations. Among its services, the Ascension converts paper documents and handwritten notes into computer-readable files — known as OCR.

It’s that bank of converted documents that was exposed, Diachenko said in his own write-up.

Sandy Campbell, general counsel at Ascension’s parent company, Rocktop Partners, which owns more than 46,000 loans worth $4.4 billion, confirmed the security incident to TechCrunch, but said its systems were unaffected.

“On January 15, this vendor learned of a server configuration error that may have led to exposure of some mortgage-related documents,” he said in a statement. “The vendor immediately shut down the server in question, and we are working with third-party forensics experts to investigate the situation. We are also in regular contact with law enforcement investigators and technology partners as this investigation proceeds.”

An unspecified portion of the loans were shared with the contractor for analysis, the statement added, but couldn’t immediately confirm how many loan documents were exposed.

TechCrunch has learned that the vendor is New York-based company OpticsML. Efforts to reach the company were unsuccessful. Its website is offline and its phone number was disconnected from service.

In a phone call, Campbell confirmed that the company will inform all affected customers, and report the incident to state regulators under data breach notification laws.

From our review, it was clear that the documents pertain to loans and mortgages and other correspondence from several of the major financial and lending institutions dating as far back as 2008, if not longer, including CitiFinancial, a now-defunct lending finance arm of Citigroup, files from HSBC Life Insurance, Wells Fargo, CapitalOne and some U.S. federal departments, including the Department of Housing and Urban Development.

Some of the companies have long been defunct, after selling their mortgage divisions and assets to other companies.

Though not all files contained the highly sensitive and personal data points, we found: names, addresses, birth dates, Social Security numbers and bank and checking account numbers, as well as details of loan agreements that include sensitive financial information, such as why the person is requesting the loan.

Some of the documents also note if a person has filed for bankruptcy and tax documents, including annual W-2 tax forms, which are targets for scammers to claim false refunds.

But the database stored documents in a random order, and were not easily followable or presented in an easy to read or formatted way, making it difficult to follow from one document to another, said Diachenko.

We verified the authenticity of data by checking a portion of names in the database with public records.

“These documents contained highly sensitive data, such as Social Security numbers, names, phones, addresses, credit history and other details which are usually part of a mortgage or credit report,” Diachenko told TechCrunch. “This information would be a gold mine for cyber criminals who would have everything they need to steal identities, file false tax returns, get loans or credit cards.”

Although the documents originate from these financiers, one bank — Citi, which helped to secure the data — said it had no current relationship with the company.

“Citi recently became aware that a third party, with no connection to Citi, was storing certain mortgage origination and modification documents in an unsecure online environment,” said a Citi spokesperson. “These documents contained information about current or former Citi customers, as well as customers from other financial institutions. Citi notified law enforcement, initiated a thorough forensic investigation and worked quickly to ensure the information could no longer be publicly accessed.”

Citi confirmed that “third party is a vendor to a company that had purchased the loans and we have found no evidence that Citi’s systems were compromised.”

The bank added that it’s working to identify potentially affected customers.

Dozens of other companies are affected, including smaller regional banks and larger multinationals.

A Wells Fargo spokesperson said the data was obtained by Ascension from other entities that purchased Wells Fargo mortgages. HSBC said it was investigating if any of its customers’ data, including past customers, and confirmed it had “no vendor relationship with Ascension since 2010.” When reached, CapitalOne did not comment at the time of publication. A Housing and Urban Development spokesperson did not respond to a request for comment. The department is currently affected by the ongoing government shutdown. If anything changes, we’ll update.

It’s the latest in a series of security lapses involving Elasticsearch databases.

A massive database leaking millions of real-time SMS text message data was found and secured last year, as well as a popular massage service and, most recently, AIESEC, the largest youth-run nonprofit for working opportunities.

Updated at 5pm ET: with comment from HSBC and additional details regarding OpticsML.

Got a tip? You can send tips securely over Signal and WhatsApp to +1 646-755–8849. You can also send PGP email with the fingerprint: 4D0E 92F2 E36A EC51 DAAE 5D97 CB8C 15FA EB6C EEA5.

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Brandon Truaxe, Founder of Deciem Skin Care Company, Is Dead At 40

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Brandon Truaxe, the former CEO and founder of the skin care company Deciem, has died at age 40.

An executive at the company confirmed Truaxe’s death in an email to Vox, which also obtained the email sent by acting CEO Nicola Kilner to Deciem’s staff.

“I can’t believe I am typing these words. Brandon has passed away over the weekend. Heartbroken doesn’t come close to how I, and how I know many of you will be feeling,” read the email, which also indicated that the company’s “offices, warehouses, factories and stores” would all be closed Monday to “take the time to cry with sadness, smile at the good times we had, reflect on what his genius built and hug your loved ones that little harder.”

A spokesperson for the Estée Lauder Cos., a minority investor in Deciem, told HuffPost: “Brandon Truaxe was a true genius, and we are incredibly saddened by the news of his passing. As the visionary behind Deciem, he positively impacted millions of people around the world with his creativity, brilliance and innovation. This is a profound loss for us all, and our hearts are with Nicola Kilner and the entire Deciem family.”

Representatives of Deciem did not immediately respond to HuffPost’s request for comment, but they did post a heartfelt message about Truaxe on their Instagram page.

“Thank you for every laugh, every learning and every moment of your genius. Whilst we can’t imagine a world without you, we promise to take care of each other and will work hard to continue your vision. May you finally be at peace. Love, (forever) your DECIEM,” they wrote.

The Toronto-based company, nicknamed “The Abnormal Beauty Company,” was called Deciem after Truaxe’s intention to launch 10 lines under the brand’s umbrella, though the brand has now exceeded that. Arguably its most famous line, The Ordinary, has gone on to achieve near-cult status for its affordable prices and ubiquity. The line is currently sold at Sephora.

As for Truaxe, he has had a multitude of highs and lows with the company. On the heels of a near-rave review in The New Yorker in early 2018, Truaxe began to appear erratic on social media and use the company’s pages to post bizarre messages and videos. By the end of the year, Estée Lauder took legal action against him, and Truaxe was ousted by a judge as CEO. Kilner has been the acting CEO ever since. Additionally, Truaxe was issued a restraining order by several executives at Estée Lauder.

While the cause of Truaxe’s death is currently unknown, a report published in Canada’s Financial Post in December 2018 indicated that he’d been previously hospitalized for mental health issues several times and had problems with drug use. 

The response on social media has been widespread, as many fans of his skin care brand mourn his death:

This article has been updated with comment from Estée Lauder Cos. and a message posted by Deciem.

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