Client Bulletin #498

4.29.13

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The Supreme Court recently held, in the usual 5-4 split, that a named plaintiff in a collective action under the Fair Labor Standards Act cannot represent similarly situated employees if her own claim is moot. In Genesis HealthCare Corp. v. Symczyk, the plaintiff had received an offer of judgment for full relief and had not perfected her appeal of court rulings on the mootness issue. Assuming without deciding that her claim was moot, the majority found that she could not continue as the representative in the collective action.

The Case

The plaintiff was a nurse formerly employed by a nursing home operator. She contended that the nursing home automatically deducted for a half-hour lunch break but that, frequently, the lunch breaks were not actually taken and employees were required to work. She sued under the FLSA for unpaid wages, including overtime, on behalf of herself and others “similarly situated.” This “collective action” is authorized under Section 16(b) of the FLSA and is similar to a class action, although with some important differences.

Class actions are governed by Rule 23 of the Federal Rules of Civil Procedure and many state-law equivalents. If a Rule 23 class is certified by the court, then all class members automatically become part of the lawsuit by default. The only way to be excluded is to “opt out,” which requires the individual to take some affirmative steps to be excluded. By contrast, in a collective action brought under the FLSA, the “default” is that the other employees are not part of the lawsuit unless they affirmatively “opt in.” This distinction was important to the Supreme Court majority decision, as will be discussed below.

At the outset of the litigation, before any other plaintiff had “opted in” or the collective action was certified, the employer made an offer of judgment to the plaintiff for full relief ($7,500), plus her attorneys’ fees and costs. An offer of judgment is authorized under Rule 68 of the Federal Rules of Civil Procedure. If the offer is accepted, the court enters judgment in favor of the plaintiff for the amount offered. If the offer is either rejected or not accepted within 14 days (10 days at the times relevant to this case), and if the plaintiff does not recover more than the amount offered, then the plaintiff must pay the defendant’s costs incurred after the offer was made. Thus, the offer of judgment is frequently used in an attempt to pressure the opposing party to settle the case.

In this case, the plaintiff did not accept the offer within the 10-day limit that applied at the time, and the nursing home moved to dismiss on grounds of mootness because it had already offered her full relief. For some reason, the plaintiff conceded that her own claim was moot but contended that she could still represent the “similarly situated” employees. A federal district court in Pennsylvania disagreed, and dismissed the case for lack of subject matter jurisdiction on the ground that there was no longer a real case or controversy between the plaintiff and the defendant. After the nursing home filed the motion to dismiss, the plaintiff amended her complaint to add class claims under Pennsylvania state law, but the trial court declined, as a matter of discretion, to exercise supplemental jurisdiction over the state law class action claims, preferring them to be filed in state court.

The plaintiff then appealed to the U.S. Court of Appeals for the Third Circuit (which hears appeals from federal courts in the states of Delaware, New Jersey, and Pennsylvania), but again conceded that her own claim was moot and argued only that she could still serve as a representative in the collective action. A three-judge panel of the Third Circuit reversed the district court, agreeing with the plaintiff that her interest in representing others in the collective action prevented the case from being moot. The nursing home then petitioned the Supreme Court to issue a writ of certiorari, which was granted. The plaintiff did not seek review of the rulings that her own claim was moot.

The Supreme Court Decision

The Supreme Court, in an opinion written by Justice Clarence Thomas and joined by Chief Justice Roberts and Justices Alito, Kennedy, and Scalia, assumed without deciding that the plaintiff’s individual claim was mooted by the unaccepted Rule 68 offer, and then held that the entire lawsuit was moot because the plaintiff “lacked any personal interest in representing others in this action.” In short, the Court ruled that there was no justiciable case or controversy.

Thus, the question whether an offer of full relief to the named plaintiff in a collective action moots her own claim, unfortunately, remains unresolved. The Court acknowledged that lower courts are divided on this issue but noted that, contrary to the dissent’s assertion, “nothing in the nature of FLSA actions precludes satisfaction – and thus the mooting – of the individual’s claim before the collective action component of the suit has run its course.”

In what may be one of the most significant parts of the decision, the majority at some length distinguished (1) collective actions under the FLSA from (2) class actions under Rule 23 of the Federal Rules of Civil Procedure. According to the majority, in class actions named plaintiffs have a representative role such that, in certain circumstances, the mootness of the named plaintiff’s individual claim does not end the class-based case or controversy. The class action certification process produces “a class with an independent status” or joins parties to the action. “By contrast, under the FLSA, conditional certification does not produce a class with an independent legal status, or join additional parties to the action.”

Kagan’s Dissent

Justice Elena Kagan, in a dissent joined by Justices Breyer, Ginsburg, and Sotomayor, blasted the majority for not addressing the question of mootness of the plaintiff’s claim. She contended that the Court should have overlooked the failure of the plaintiff to file a cross petition for review on the mootness issue, contending that the plaintiff’s failure was forgiveable because she had prevailed at the Third Circuit and because a challenge to the mootness ruling was embedded in the issue that the majority decided. In Kagan’s opinion, the offer of judgment became a nullity when it expired without being accepted; therefore, it did not render the collective action moot. She even blasted the Third Circuit, although it had ruled in favor of the plaintiff on other grounds, saying it was “wrong, wrong, wrong” in holding that the unaccepted offer of judgment made the plaintiff’s claim moot, and she warned other appeals courts not to make the same error. Finally, she argued that the policies behind FLSA collective actions are the same as Rule 23 class actions and that defendants ought not to be able to “pick off” individual plaintiffs’ claims to avoid collective actions.

Implications for Employers

The majority opinion in Genesis HealthCare means that (1) the federal circuits’ rulings will control whether early individual offers of judgment to named plaintiffs will moot the named plaintiffs’ FLSA claims; but, where the named plaintiffs’ claims are moot, (2) the collective action will always fold because there is no justiciable case or controversy.

Thus, the decision is expected to have an impact on the early stages of collective actions under the FLSA, including discovery, which may have individual and collective aspects. In many of these cases, the group discovery alone is so expensive that employers choose to settle, regardless of the merits of the case. Confining a case to a handful of individuals may help employers keep litigation costs in check.

All that said, employers should beware of the dissenting view – which may someday prevail, depending on the longevity of the current majority on the Court – and understand that offers of judgment are not a panacea for employers. First, many jurisdictions still hold that an unaccepted offer of judgment for full relief does not moot the plaintiff’s claim. If not, then the case can presumably proceed as a collective action, even after Genesis HealthCare. Moreover, there is no certainty that a full-value offer to a named plaintiff will prevent an industrious attorney from finding a host of other employees willing to step in and become new “named plaintiffs.”

Another employer strategy, to which the Court alluded, might be to attempt “satisfaction” of the FLSA claim. That is, instead of just tendering an offer, tender payment for the full amount of the claim, including the liquidated damages, attorneys’ fees and costs, “shooting high.” In this way, the constraints of Rule 68 might be avoided. But plaintiffs and their counsel have been known to refuse. And the attorneys’ fee amount is potentially always growing, making it difficult to make the full relief calculation to satisfy a claim even when a defendant wants to do so.

The Supreme Court’s decision may encourage plaintiffs to move promptly for conditional certification of collective actions. Currently, plaintiffs frequently delay seeking certification – sometimes for years after the lawsuit has been filed. Once the collective action is certified, others can begin opting in, which gives the named plaintiff some backup and makes it difficult, if not impossible, for the employer to begin picking plaintiffs off. Employers can expect to see an increase in lawsuits that combine class wage and hour claims with collective FLSA claims. This is already fairly common because state wage and hour laws frequently have longer statutes of limitation, and, if certified, class members are in the lawsuit unless they affirmatively opt out. This approach is another way for plaintiffs to defend against a “pickoff” strategy. It also makes satisfaction through full relief far more difficult.

Finally, the Supreme Court’s explanation of the fundamental differences between collective and class actions may make it easier for employers to bar FLSA collective actions based on arbitration agreements. Employees sometimes argue that arbitration agreements should not be enforced in connection with FLSA collective actions because of the policy interest in having the plaintiff pursue collective (as opposed to individual) FLSA rights. Given the majority’s holding that an FLSA collective action does not create a class with an independent legal status, arbitration arguably does not interfere with any substantive right of the plaintiff to pursue collective relief. The Supreme Court’s decision may keep some of these FLSA claims in arbitration and out of court.

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