Supreme Court creates another snag for class actions

Rules suit alleging wage-related violations became moot

By Sylvia Hsieh
The Daily Record Newswire
 
BOSTON — The U.S. Supreme Court dealt another blow to class actions in its recent decision allowing an employer to get rid of a wage class action by “picking off” the named plaintiff before it begins.

While it’s debatable how serious the blow really is, employers can expect to see a few changes in strategy by lawyers filing wage and hour class actions, which continues to be a fertile area of litigation.

In the 5-4 ruling in Genesis Healthcare v. Symczyk, the court held that a collective action alleging wage-related violations of the Fair Labor Standards Act became moot when the employer offered to settle with the named plaintiff, a nurse who claimed workers weren’t paid for meal breaks they worked through.

Some lawyers see the ruling as more evidence that the court is tightening the belt on class actions.

“When you put this case together with the Comcast v. Behrend decision a few weeks ago and Walmart Stores, Inc. v. Dukes last year, it’s definitely getting harder to make out a collective wage-and-hour claim in federal court. There’s no doubt,” said Jonathan T. Hyman, a partner at Kohrman Jackson & Krantz in Cleveland.

“Those cases push class certification back, and this case says if a defendant pays up all existing plaintiffs before a district court makes a certification decision, the case is over,” said winning attorney Ronald J. Mann, a professor at Columbia Law School in New York.

But others predict the ruling will have no effect on regular class actions and little effect on wage-and-hour collective actions under the FLSA because of the unique facts of the case.

Further, the court assumed without deciding the more contentious question of whether a plaintiff’s individual claim becomes moot if, as in this case, the defendant offers a full settlement but the plaintiff doesn’t respond.

“It’s another case, like Comcast, that is never going to arise again, and it means nothing,” said Barry C. Barnett, a partner at Susman Godfrey in Dallas, who argued the Comcast case.

“It’s an unusual case and a narrow case,” agreed Paul Cane, a partner at Paul Hastings Janofsky & Walker in San Francisco.

‘Appropriately dismissed’

After leaving her job, the plaintiff brought a collective action under the FLSA on behalf of herself and all similarly situated individuals. According to the plaintiff, the defendant violated the Act by automatically deducting meal breaks, even when employees performed compensable work during those breaks.

After answering the complaint, the defendant served the plaintiff with a Rule 68 offer of judgment in the amount of $7,500 for lost wages, plus attorney fees, costs and expenses. When the plaintiff failed to respond to the offer, the district court dismissed the case for lack of subject-matter jurisdiction, concluding that the Rule 68 offer mooted the entire
action.

The 3rd U.S. Circuit Court of Appeals disagreed, finding that the collective action was not necessarily mooted by the offer.

But the Supreme Court reversed, holding that with the lone named plaintiff’s case mooted, the collective action was also moot.

“Reaching the question on which we granted certiorari, we conclude that [the plaintiff] has no personal interest in representing putative, unnamed claimants, nor any other continuing interest that would preserve her suit from mootness. [The plaintiff’s] suit was, therefore, appropriately dismissed for lack of subject-matter jurisdiction,” wrote Justice Clarence Thomas for the majority.

The court did not review the district court’s judgment that the plaintiff’s individual claim was moot.

“While the Courts of Appeals disagree whether an unaccepted offer that fully satisfies a plaintiff’s claim is sufficient to render the claim moot, we do not reach this question, or resolve the split, because the issue is not properly before us,” the court said, noting contrary decisions from the 2nd and 3rd Circuits.

Justice Elena Kagan wrote a spunky dissent, arguing that the majority resolved an “imaginary question” that is never going to come up again, because the plaintiff cannot be sent away empty-handed simply because she let the defendant’s offer lapse.

“So a friendly suggestion to the Third Circuit: Rethink your mootness-by-unaccepted-offer theory. And a note to all other courts of appeals: Don’t try this at home,” Kagan wrote.
New strategies

In anticipation of defendants potentially defeating a collective action by buying off named plaintiffs, lawyers representing class plaintiffs may sue in state court more often and try to get notice to class members sooner.

Many states have wage-and-hour statutes that parallel the federal FLSA, but state courts would not observe mootness doctrines that federal courts are required to observe in order to exercise jurisdiction.

“The mootness doctrine under state law is less stringent than under federal law, so taking this decision and applying it in a state court context is going to be another significant hurdle,” said Cane.

According to Hyman, suing under state law would protect a class under opt-out rules, which are the opposite of opt-in rules under FLSA.

Opt-in means that class members must affirmatively choose to be in the class, whereas opt-out makes them members by default unless they actively exclude themselves.

“The standards for class certification under state wage-and-hour would be opt-out, and the argument that you could pick off a plaintiff and leave nothing behind doesn’t exist,” said Hyman.

Another way for plaintiffs to avoid mootness under this ruling is to get notice to collective members sooner so that more people can opt-in earlier.

“Defendants would have to pick off more plaintiffs and wipe out the entirety of the plaintiffs’ group and that gets increasingly expensive, particularly given that they are likely going to need to include attorneys’ fees in the offer,” said Cane.

In other types of class actions, it will be harder for employers to pick off plaintiffs because the damages are not as easy to calculate and the ruling only works for defendants who make a full offer.

“It would be hard to extend this decision into another context, such as Title VII, because those statutes may include emotional damages that are impossible to quantify and it’ll be hard to determine whether full relief was in fact offered,” said Cane.

‘Haven’t heard the last of it’

As defendants try to pick off class plaintiffs, lower courts will have to wrestle with a question the Supreme Court did not address — whether the individual named plaintiff’s case is moot if a defendant offers the full amount of her claim.

Lower courts are split over what to do with an individual’s lawsuit when a defendant offers to make the plaintiff whole, but the plaintiff rejects the offer or lets it lapse.
“That’s what people are going to litigate: What does a district court do when a plaintiff refuses to take the money?” asked Mann.

Some courts essentially force the plaintiff to accept by mooting the case; others allow the case to continue.

“The question is whether an offer of full relief, even if a plaintiff doesn’t want to accept it, moots his or her claim,” said Cane. “Kagan’s point is that an unaccepted offer is nothing more than an unaccepted offer; and the plaintiff still retains her right to sue. The counterargument is that you don’t have the right to litigate where a defendant has surrendered
and capitulated.”

“Ultimately, it’s something that has to percolate for a more definitive answer. I’m not convinced we’ve heard the last of it,” he said.

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