By Gerald L. Maatman, Jr., Gregory Tsonis, and Ryan T. Garippo
Duane Morris Takeaways: On August 16, 2024, in Luna Vanegas, et al. v. Signet Builders, Inc., No. 23-2964, 2024 WL 3841024 (7th Cir. Aug. 16, 2024), the U.S. Court of Appeals for the Seventh Circuit found that, in a Fair Labor Standards Act (“FLSA”) collective action, a district court must have personal jurisdiction over a defendant for every single one of the would-be plaintiffs’ claims. Those plaintiffs for whom personal jurisdiction does not exist must proceed in a forum where the corporate defendant is essentially at home. This decision is a substantial win for employers and helps prevent them from being dragged into nationwide lawsuits far away from where they do most of their business.
Case Background
Signet Builders, Inc. (“Signet”) is both incorporated and headquartered in Texas, but its business spans across the nation. As part of its business, Signet employs a small subsect of its employees in Wisconsin who are primarily tasked with building livestock houses. Plaintiff Jose Ageo Luna Vanegas (“Luna Vanegas”) was one of those workers. In 2021, he sued Signet in the U.S. District Court for the Western District of Wisconsin claiming that he was not paid overtime, in violation of the FLSA. Luna Vanegas, however, did not bring his claims on an individual-plaintiff basis, but rather sought to litigate his FLSA claims on a nationwide collective action basis in an effort to magnify the scope of the litigation.
After Luna Vanegas filed his lawsuit, a complicated legal battle unfolded. Signet filed a motion to dismiss and argued that “Luna Vanegas’s work fell within a provision of the FLSA that exempts agricultural workers from its overtime requirements.” Luna Vanegas v. Signet Builders, Inc., 554 F. Supp. 3d 987, 989-90 (W.D. Wis. 2021) (citing 29 U.S.C. § 213(b)(12)). The district court held that Luna Vanegas “performed his work on farms, and the work he performed — constructing livestock containment structures — was incidental to farming,” and therefore dismissed his case. Id. at 993.
Luna Vanegas appealed that dismissal to the Seventh Circuit. It reversed the district court — holding that dismissal was premature. Luna Vanegas v. Signet Builders, Inc., 46 F. 4th 636, 645 (7th Cir. 2022). The Seventh Circuit ruled that § 213(b)(12) is an affirmative defense, and Luna Vanegas’ complaint did not contain enough facts about the agricultural nature of the work to warrant dismissal. Signet then filed a petition for writ of certiorari and asked the U.S. Supreme Court to decide the issue, which the Supreme Court declined to do. Signet Builders, Inc. v. Luna Vanegas, 144 S. Ct. 71 (2023).
With the case back at the district court, Luna Vanegas filed a motion for conditional certification, a common strategic tactic in FLSA collective actions, and sought to send notice of the lawsuit to a nationwide group of Signet’s employees. Luna Vanegas v. Signet Builders, Inc., No. 21-CV-00054, 2023 WL 5663259, at *1 (W.D. Wis. Sept. 1, 2023). Even though Signet was incorporated and headquartered in Texas, the district court held that it was fair for this notice to go out to employees across the nation, because otherwise the ruling would have “the practical effect of forcing plaintiffs to file any multi-state FLSA collective action in the defendant employer’s home forum.” Id. at *3. Signet then filed a motion for interlocutory appeal, bringing the case back to the Seventh Circuit for a second time. Id. at *4. The district court granted that request.
The Seventh Circuit’s Opinion
On appeal, the Seventh Circuit reversed the district court for the second time, but this time on personal jurisdiction grounds.
The Seventh Circuit explained that generally a plaintiff can only sue a corporate defendant in three places. First, a corporation can be sued in its state of incorporation. Second, a corporation can be sued in the state where its headquarters is located. And third, a corporation can be sued in any state where the issues connected with that particular case occurred. In this case, it was undisputed that Signet was incorporated and headquartered in Texas. It was also undisputed that only Luna Vanegas’ claims (and not the claims of other employees) arose out of Signet’s conduct in Wisconsin. Therefore, the question was whether Signet’s conduct in Wisconsin was sufficient to justify a nationwide case. The Seventh Circuit held that it was not.
Relying heavily on a recent U.S. Supreme Court decision in Bristol-Myers Squibb Co. v. Superior Ct. of California, San Francisco Cnty., 582 U.S. 255 (2017), the Seventh Circuit held that Signet must be subject to personal jurisdiction in Wisconsin — for each and every one of the would-be opt-in plaintiffs’ claims — for the case to go forward on a nationwide basis. This rule differs from the standard in Rule 23 class actions because there, a representative plaintiff can maintain a lawsuit in a foreign jurisdiction as long as the court has jurisdiction over the named plaintiff.
The Seventh Circuit, however, reasoned that because a collective action plaintiff is not a party until they “opt in” to the litigation, FLSA collective actions are truly just “agglomerations of individual claims,” as opposed to one singular lawsuit. Luna Vanegas, 2024 WL 3841024, at *4. Further, unlike Rule 23 class actions, each party is entitled to proceed individually and “the statute of limitations on opt-in plaintiffs’ claims enjoys tolling only after the plaintiff files her consent, which goes to show the focus on a plaintiff’s own management of her claim.” Id. Consequently, the Seventh Circuit set a different standard to find personal jurisdiction in FLSA collective actions than the standard for Rule 23 class actions.
Additionally, the Seventh Circuit dispensed with a highly technical argument regarding Federal Rules of Civil Procedure 4 and 5 — holding that it did not save Luna Vanegas’ nationwide lawsuit. Luna Vanegas argued that once personal jurisdiction was established over his claims against Signet in Wisconsin, and service was validly executed pursuant to Rule 4, then he was free to add parties via service under Rule 5. However, the Seventh Circuit succinctly and unequivocally rejected that argument and held: “That is not how it works.” Id. at *7 (emphasis added). The Seventh Circuit explained that the Rule 5 workaround only applies if the court already has personal jurisdiction over the defendant as to the opt-in plaintiffs’ claims. Otherwise, a new summons needs to be brought in a venue where the opt-in plaintiff can establish personal jurisdiction over the company.
Implications For Employers
Although a positive development for employers, this opinion is not a “nail in the coffin” for nationwide FLSA collective actions. Indeed, the Seventh Circuit explicitly noted that “[a] nationwide collective of Signet’s workers could proceed in Texas, which enjoys general jurisdiction over Signet, with no loss of efficiency.” Id. at *9. Rather, this opinion simply states that if an employee is going to sue their employer for millions of dollars of potential liability and while asserting a nationwide collective action, they must do so in their employers’ home forum.
Corporate counsel, however, should not expect the fight to stop here. The Seventh Circuit’s opinion is consistent with recent holdings by the Courts of Appeal in the Third, Sixth, and Eight Circuits, each imposing the same personal jurisdiction requirement. Canaday v. Anthem Cos., 9 F.4th 392 (6th Cir. 2021); Fischer v. Fed. Express Corp., 42 F.4th 366 (3d Cir. 2022); Vallone v. CJS Sols. Grp., LLC, 9 F.4th 861 (8th Cir. 2021). The issue is not entirely settled, however, as the First Circuit reached the opposite conclusion. Waters v. Day & Zimmermann NPS, Inc., 23 F.4th 84, 94 (1st Cir. 2022). Accordingly, the pending circuit split signals that this issue is ripe for consideration by the U.S. Supreme Court.