Category: Class Certification Motions

By Gerald L. Maatman, Jr. and Rebecca S. Bjork

Duane Morris Takeaways: On July 18, 2023, the U.S. Court of Appeals for the District of Columbia Circuit ruled that district courts must analyze the predominance and superiority requirements for certification of a class action when considering an “issue class” under Rule 23(c).  In Harris v. Medical Transportation Management, Inc., No. 22-7033 (D.C. Cir. July 18, 2023), the three-judge panel ruled that the district court erred when it certified an “issue” class under Rule 23(c)(4) without first undertaking an analysis of whether the class certification prerequisites of Rule 23(a) and 23(b) had also been satisfied.  The case was remanded for further proceedings.  The D.C. Circuit’s decision ought to be required reading for employers with large workforces and those dealing with wage & hour class actions.  It bears watching whether the district court’s analysis of the rigorous requirements of Rule 23(b) on remand also results in a pro-certification decision, given the instructions provided on remand.    

Case Background

In Harris, the named plaintiffs were non-emergency medical drivers for the defendant, a company that provides transportation to individuals on public assistance who require transit getting to medical appointments.  They alleged that they and a class of other drivers who they seek to represent in a class action lawsuit were denied minimum and overtime pay in violation of District of Columbia and federal wage and hour laws.  Slip op. at 5-6.

Whether defendant MTM could as a matter of law be held liable as the drivers’ employer is a threshold question in the litigation.   Id. at 6.  The district court certified issues classes as to (i) whether MTM is the drivers’ joint employer (along with its sub-contractors); and (ii) whether MTM is a general contractor under D.C. law and thus strictly liable.  Id. at 8.  The district court did so despite finding previously that the predominance requirement of Rule 23(b)(3) was not met under the facts of the case specifically as they relate to the payment system for the drivers.  Id. at 7-8.

MTM appealed the issue certification ruling.

The D.C. Circuit’s Decision

In a straightforward ruling, but one that delves into the complexities of Rule 23 with law-professor like precision, the D.C. Circuit panel consisting of Judges Millett, Childs and Rogers determined that the district court could not certify the issue classes under Rule 23(c)(4) without deciding whether those classes also meet the requirements of Rule 23(a) – commonality and typicality – and 23(b) – predominance and superiority.  In essence, the D.C. Circuit read the plain language of Rule 23 and observed that sub-sections (a), (b) and (c) all bear on the certification inquiry conducted by the district court and therefore must be considered on an equal basis.  Id. at 14-15.

In the penultimate statement of the holding, Judge Childs opined that “Rule 23’s text and structure offer no quarter to the view that Rule 23(c)(4) creates an independent type of class action that is freed from all of Rule 23’s other class action prerequisites.  So the district court should have ensured that the issue class that it certified met all, and not just some, of Rule 23(a) and (b)’s preconditions to class status.”  Id. at 15-16.

The D.C. Circuit instructed the district court that it must analyze on remand each of the potential class actions available under Rule 23(b)(3)’s predominance analysis.  Id. at 19-20.  It discussed various ways in which Rule 23(c)(4) can be applied in the context of the joint employer analysis that is at issue in Harris, such as bifurcating the liability issue from remedial claims, or where affirmative defenses may muddy the waters of class-wide evidence in a certified issues class.  Id. at 21-22.

In a similar vein, Judge Childs instructed that summary judgment motions on discrete issues represent another way in which district courts could management issue certified class actions where the predominance of individualized issues threaten to overrun the common proof.  Id. at 24-25.

Implications For Employers

The D.C. Circuit opinion in Harris v. MTM provides corporate counsel and executives a clear and easily understandable explanation of how Rule 23(b) and (c) intersect with one another when an issue class or classes are certified in class action litigation.  District courts cannot certify issue classes under Rule 23(c)(4) without undertaking the rigorous analysis required to conclude that a class action is superior and manageable, that common issues will predominate over individualized issues, and that there are common and typical issues to be resolved in the first place.  And by suggesting specific mechanisms that a district court has at its disposal for case management purposes such as targeted summary judgment motions, the decision provides reasonable strategies to consider when facing class action litigation.

By Gerald L. Maatman, Jr., Alex W. Karasik and Shaina Wolfe

Duane Morris Takeaways: In Emmanuel Jean-Francois et al. v. Smithfield Foods, Inc., et al., No. 7:22-CV-63, 2023 U.S. Dist. LEXIS 118136  (E.D.N.C. July 10, 2023), a federal district court in North Carolina denied plaintiffs’ motion for conditional certification of an FLSA collective action, holding that the collective action they sought to certify was duplicative to the conditionally certified collective actions in two other pending cases.

This decision is well worth a read for companies who are confronted with numerous collective action lawsuits containing similar alleged violations of wage and hour laws.

Case Background

Three employees (“Plaintiffs”) sued their employer, Smithfield Fresh Meats Corp. (“Smithfield”), and three of its sister companies (collectively “Defendants”) for violations of the Fair Labor Standards Act (“FLSA”), and specifically, for failing to include a “responsibility bonus” in their pay when calculating overtime. Id. at 1. During COVID-19, Plaintiffs received a “responsibility bonus,” which entitled them, as hourly employees, to a bonus of “$5 per hour for all regular hours worked up to and including forty in a workweek,” between April 1, 2020 and October 31, 2020. Id. at 3. Plaintiffs alleged that Defendants underpaid them for overtime pay during the period between April 1, 2020 and October 31, 2020. Id.

Plaintiffs moved to certify a collective action of a similarly situated group of 8,000 employees who were not properly compensated by Defendants for overtime work performed. Id. at 1. Defendants opposed the motion for conditional certification and argued, among other things, that the proposed collective action could not be certified because it was duplicative to two other cases entitled Canas and Winking. Id. at 2. The parties in Canas and Winking had recently reached agreements to settle the FLSA claims concerning the same responsibility bonus for employees and notices to opt-in plaintiffs who opted into the settlement had already been distributed. Id. at 2-3.

The Court’s Decision

The Court agreed with Defendants and denied Plaintiffs’ motion for conditional certification. Id. at 11. Significantly, the Court found that the Canas action encompassed claims identical to the claims Plaintiffs alleged in Jean-Francois. Id. at 11.

The Court explained that, “[i]n Canas, the collective [action members] settled claims against Smithfield (including employees in North Carolina) based on the same facts and during the same time period.” Id. In Canas v. Smithfield Packaged Meats Corp., No. 1:20-CV-4937 (N.D. Ill.), some employees brought a collective action lawsuit for violations of the FLSA against Smithfield, one of its sister companies, and another company. Id. at 2. On September 13, 2021, the judge in Canas approved a settlement between “the FLSA settlement class plaintiffs who opted into the settlement” and the two Smithfield companies concerning the responsibility bonus. Id. at 2–3. The settlement included employees who worked in North Carolina. Id. at 3.

The Court further explained that Plaintiffs were already part of the collective action that received notice as part of the Canas collective action, and that the scope of the Canas collective action included every potential opt-in plaintiff in the current proposed collective action at issue in Plaintiffs’ motion. Id. at 9-10. Instead of certifying another collective action, the Court opined that Plaintiffs’ remedy was “to proceed with their action as an individual action or request to be paid now what they would have received had they submitted a claim for from the Canas reserve fund.” Id. at 10-11. For these reasons, the Court denied Plaintiffs’ motion for conditional certification.

Implications For Employers

In FLSA collective actions, it is not uncommon for a series of cascading lawsuits to be filed against the same company, especially in scenarios when employees in scattered locations may independently retain their own counsel. However, it can be distracting for a business to have its workforce receive multiple notifications providing opportunities to join lawsuits against their employer, especially when the lawsuits may appear to be similar. This is an excellent ruling for employers to use when they are confronted with multiple, duplicative FLSA collection action lawsuits. Accordingly, businesses involved in wage and hour litigation would be wise to keep this ruling tucked away.

 

By Gerald L. Maatman Jr., Jeffrey R. Zohn, and Jesse S. Stavis

Duane Morris Takeaways: On June 27, 2023, Judge J. Paul Oetken of the U.S. District Court for the Southern District of New York denied certification in a putative class action filed under the Employee Retirement Income Security Act (“ERISA”) by a participant in a retirement plan offered by Teachers Insurance and Annuity Association of America (“TIAA”). In Haley v. Teachers Ins. and Annuity Ass’n, No. 17 Civ. 855 (S.D.N.Y. Jun. 27, 2023), the court brought an end to a legal battle that began in 2018 by applying an appellate ruling that held that Rule 23(b)’s predominance requirement obligates courts to consider not only a plaintiff’s allegations, but also a defendant’s affirmative defenses.

The decision is instructive for defendants who are faced with class allegations that purport to target a single policy or practice, but which in fact relate to numerous individual decisions. It should also serve as a reminder that defendants must consider not only the facial validity of a claim, but also the robust defenses available under the ERISA.

Case Background

Melissa Haley, an employee of Washington University in St. Louis, initiated her lawsuit against TIAA in 2018. She sought to represent participants in approximately 8,000 retirement plans that used TIAA’s services to allow members to take out loans against their retirement savings. Haley alleged that TIAA had departed from standard industry practices by retaining interest earned on participants’ collateral as compensation for administering loans. TIAA countered that while the transactions might be facially prohibited under Section 406 of the ERISA, they were permissible because they were covered by several of the defenses provided by Section 408 of the Act. Most significantly, TIAA argued that the transactions were permissible under Section 408(b)(17), which allows a plan to engage in otherwise-prohibited transactions where it pays no more and receives no less than “adequate consideration.”

Judge Oetken initially granted class certification in 2020 under Rule 23(b)(3) in Haley v. Teachers Ins. & Annuity Ass’n of Am., 337 F.R.D. 462 (S.D.N.Y. 2020).  However, the Second Circuit vacated the ruling and remanded the case on the grounds that the district court had erred in assessing whether Rule 23’s predominance requirement had been met. See Haley v. Teachers Ins. & Annuity Ass’n of Am., 54 F.4th 115 (2d Cir. 2022). The predominance requirement mandates that plaintiffs demonstrate not only that there are common questions of law or fact in a putative class’ allegations, but also that such questions predominate over questions affecting only individual members. In conducting the predominance analysis, the Second Circuit held that the district court must not only consider a plaintiff’s allegations, but also must analyze a defendant’s defenses. Because the district court had not conducted a predominance analysis with respect to the Section 408(b)(17) defenses, the class certification order could not stand.

Southern District of New York Opinion

On remand, Judge Oetken considered whether both the alleged claims and defenses were “amenable to general, class-wide proof.” Haley, No. 17 Civ. 855, at 4 (citing Langan v. Johnson & Johnson Consumer Cos., 897 F.3d 88, 97 (2d Cir. 2018)). Plaintiff argued that similar issues of law and fact were involved in all of the putative class’ claims, but TIAA countered that evaluating the substantial consideration defense would require the district court to conduct an individualized assessment of how TIAA acted with respect to each of the roughly 8,000 plans involved in the litigation. Judge Oetken ultimately sided with TIAA, holding that “[t]he common issues that Plaintiff identifies as satisfying predominance are insufficient to overcome the individual issues raised by section 408(b)(17).” Id. at 6. Because there were clear differences in fees and plan structures, it would not be possible to arrive at common answers to the decisive question of whether there had been adequate consideration for each transaction.

The district court rejected Plaintiff’s attempt to draw class-wide conclusions from either her own plan’s arrangement or from statistical averages that allegedly showed that plan participants paid an average of 4.66% to receive 1.66% in returns. Allowing the class allegations to proceed based on these averages would constitute an impermissible attempt at “trial by formula,” which the district court held would be prohibited by both Rule 23 and the due process clause. Judge Oetken opined that “[t]he averages are probative of the parameters of the statistical sample, not common traits within it.” Id. at 7. Finally, the district court rejected Plaintiff’s attempt to save the class by dividing it into sub-classes because Plaintiff had failed to raise this argument earlier.

Implications For Defendants

ERISA class actions can be difficult to defend against, as Plaintiffs typically assert that discrete types of alleged plan mismanagement led to common injuries that affected large numbers of participants in similar ways. As a result, ERISA plaintiffs often do not face the same problems in establishing typicality, commonality, and predominance as do plaintiffs in other class actions. Haley is an exception to this rule. Defendant was able to show that the case was not about a single policy, but about numerous individual actions. The decision underscores the importance of probing deeply into a putative class member’s allegations to determine whether they meet the rigorous standards of Rule 23.

In addition, Haley shows just how powerful the affirmative defenses in Section 408 can be. As the district court noted, Section 406 is written so broadly that a plain reading of the section would ban many, if not most, transactions involving service providers like TIAA. However, the broad sweep of Section 406 is explicitly limited by the exemption defenses contained in Section 408. Accordingly, defendants who are accused of violating Section 406 must carefully consider the defenses provided by Section 408 and raise them in a timely fashion.

By Gerald L. Maatman, Jr. and Jennifer A. Riley

Duane Morris Takeaways: In Edmond, et al. v. City of Chicago, No. 17-CV-4858 (N.D. Ill. June 6, 2023), Judge Matthew F. Kennelly of the U.S. District Court for the Northern District of Illinois denied a motion for class certification filed by a group of current and former employees alleging workplace race discrimination in violation of state and federal law. The ruling highlights the viability of defense positions relative to Plaintiffs’ failure to meet the Rule 23 commonality requirement, which was instrumental to defeating their bid for class certification.

Case Background

Nine African-American workers currently or previously employed by the Chicago Department of Water brought a putative class action against the City of Chicago and several individuals employed by it in 2017, alleging race discrimination and a hostile work environment on behalf of a group of employees. Plaintiffs alleged the existence of an ongoing and pervasive “culture of racism” fostered by organizational leadership across five bureaus and various sub-bureaus, treatment plants, and construction sites. Id. at 4. The lawsuit was brought after the City’s Inspector General uncovered emails containing racist exchanges between Department commissioners and deputies, which resulted in resignations of two executives. Id.

Plaintiffs alleged that the hostile work environment included racially offensive language, threatening gestures, and disparate treatment of Black employees in violation of 42 U.S.C. §§ 1981 and 1983 and Illinois law, and filed a motion to certify a class that included all Black workers employed by the Water Department since 2011 and three sub-classes for individuals who had been eligible for overtime, those with disciplinary infractions, and those who had been denied promotions.

In 2018, the Court granted Defendants’ partial motion to dismiss. Plaintiffs then brought a motion to amend the complaint in order to drop the individuals from the suit, which was granted without prejudice. Subsequently, Plaintiffs filed a motion to certify the classes pursuant to Rule 23 of the Federal Rules of Civil Procedure.

The Court’s Decision

The City argued that because Plaintiffs were unable to establish a shared work environment in their hostile work environment claim due to the Department’s dispersed workforce, Plaintiffs failed to identify a common contention whose resolution would resolve class claims, as required under Rule 23(a)(2)’s commonality element. The Court agreed with this position. It opined that there was no “evidence of common areas shared by all Department employees or instances of harassment broadcast across the entire Department.” Id. at 10. The Court found that the experience of putative class members varied across the Department, with individual claims of discrimination ranging from verbal to visual conduct, while others alleged bias in duty assignments or disciplinary actions.

Plaintiffs additionally contended that a pervasive culture of discrimination permeated the Water Department. They cited statements made by members of the city administration and the Inspector General’s investigation, and posited that this was proof of a “de facto policy of racism” across the workplaces. Id. at 11. The Court was not convinced that this had a uniform impact on all the named Plaintiffs and putative class members to satisfy the commonality question, and it denied the motion for class certification based on Plaintiffs’ failure to meet this threshold under Rule 23(a).

Likewise, Judge Kennelly rejected Plaintiffs’ arguments for certification of each sub-class based on a pervasively racist culture. The Court concluded that disciplinary, overtime, and promotion decisions were made by individual supervisors based on their personal discretion and varied across the Department, and that Plaintiffs failed to show evidence that the same decision-makers were responsible for such actions. Id. at 23. The Court was not convinced by Plaintiffs’ expert witness’ use of statistical data to show a disparate impact, noting that similar evidence had not been sufficient to demonstrate commonality for purposes of class certification in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011).

Implications For Employers

The Edmond ruling underscores the importance of maintaining and utilizing a well-organized workplace reporting structure and managerial discretion in employment matters in anticipating arguing the absence of Rule 23’s commonality requirement, as seen in the Wal-Mart decision. In dismissing all of Plaintiffs’ arguments after finding an absence of a work environment common to all putative class members and no top-down decision-making policy regarding wages and promotions, the Court signals its steady reliance on the well-established standards for these types of claims, providing a valuable reaffirmation to employers’ reliable defense strategies.

 

By Gerald L. Maatman, Jr., Emilee N. Crowther, and Nicolette J. Zulli

Duane Morris Takeaways: In Levine v. Vitamin Cottage Natural Food Markets, Inc., No. 20-CV-00261, 2023 U.S. Dist. LEXIS 92027 (D. Colo. May 25, 2023), Magistrate Judge Scott T. Varholak of the U.S. District Court for the District of Colorado granted Defendant Vitamin Cottage Natural Food Markets, Inc.’s (“Vitamin Cottage”) Motion to Decertify Plaintiff’s FLSA collective action, and denied Plaintiff’s Motion for Rule 23 Class Certification. The Court’s decision in this case aptly illustrates the standards under which courts should analyze, and defendants should move, for decertification of FLSA collective actions, as well as the standards for certification of a Rule 23 class in wage & hour misclassification lawsuits. This opinion is well-worth a read by corporate counsel, as it underscores the importance of well-planned and strategic discovery in defending class and collective actions in the context of an exemption misclassification case. Furthermore, it also demonstrates the contingent relationship and outcome of concurrently filed motions to for decertification brought by defendants and motions for Rule 23 class certification brought by plaintiffs.

Case Background

Vitamin Cottage owns and operates more than 150 grocery stores in nineteen states, and employs over 3,000 individuals. Plaintiff, a former Assistant Store Manager (“ASM”) in Colorado, filed suit under the Fair Labor Standards Act (“FLSA”) and Colorado Wage Claim Act (“CWCA”) alleging improper classification of ASMs as exempt employees and denying them overtime.

In November 2020, the Court granted Plaintiff’s Motion for Conditional Certification and conditionally certified a collective action for the purposes of Plaintiff’s FLSA claims. In total, one-hundred fifty-eight (158) individuals opted-in to the collective action against Vitamin Cottage. Thereafter, Plaintiff and Vitamin Cottage conducted written discovery and depositions.

After the close of discovery, Vitamin Cottage filed a Motion to Decertify the conditionally certified collective action on the grounds that the opt-ins and Plaintiff were not similarly situated. Two months later, Plaintiff filed a Motion to for Class Certification, seeking to certify a Rule 23(b)(3) class of ASMs for the purpose of Plaintiff’s state law claims.

The Court ultimately granted Vitamin Cottage’s Motion to Decertify, and denied Plaintiff’s Motion for Class Certification.

The Court’s Decision On The Motion For Decertification

In granting Vitamin Cottage’s Motion for decertification, the Court emphasized that its review at the post-discovery decertification stage of whether workers “are similarly situated” under the FLSA is “strict.” Id. at *5. The Court evaluated the following factors in its strict “similarly situated” analysis: “(1) the disparate factual and employment settings of the individual plaintiffs; (2) the various defenses available to defendant which appear to be individual to each plaintiff; and (3) fairness and procedural considerations.” Id. at *5; see also Thiessen v. Gen. Elec. Capital Corp., 267 F.3d 1095, 1102-05 (10th Cir. 2001) (known as the Thiessen factors).

As the basis of the suit was a misclassification claim, for the first factor, the Court conducted “a fact-intensive inquiry into the daily activities of each individual plaintiff in order to adequately identify the actual scope of Plaintiffs’ job duties to determine the extent and consequences of any disparities among them.” Id. at *10 (quoting Green v. Harbor Freight Tools USA, Inc., 888 F.Supp. 2d 1088, 1099 (D. Kan. 2012)). After noting that FLSA claims are permitted to proceed collectively “when disparities among the opt-in plaintiffs are ‘not material’ and are ‘outweighed by the similarities between those Plaintiffs,’” the Court held that the discovery responses and deposition testimony established “material disparities” that weighed against the matter “proceeding collectively.” Id. at *10-11.

While Plaintiffs argued that the disparities between the opt-ins were minor and non-material, and that the ASMs collectively spent the majority of their time on non-exempt tasks, the Court reiterated that “determining the exemption status of any given individual depends on all the facts in a particular case and demands an examination of the character of the employee’s job as a whole.”  Id. at *18. Expanding on that general proposition, the Court noted “the amount of time spent performing exempt work . . . is not the sole test of whether an employee is exempt,” and analyzed the disparities that arose during discovery between potential collective members’ involvement in: (1) management (extent and type); (2) scheduling and task assignment; (3) managing and reporting store finances and performance; (4) ensuring store compliance with food safety regulations, including managing safety audits; (5) managing employee complaints and grievances; (6) directing the work of other employees; (7) hiring and firing employees.  Id. at *11-16.

Ultimately, despite some uniformity (including a uniform job description, employment policies, and Vitamin Cottage’s uniform policy of classifying ASMs as non-exempt), the Court stressed that “the decertification analysis must turn on whether the [collective action] members were actually performing similar duties,” and where opt-ins “effectively disavow the job descriptions as not reflective of their day-to-day responsibilities,” opt-ins “may not rely on the job description itself as generalized evidence of the scope and similarity of their daily activities.” Id. at *20. As such, the Court held that the disparate factual and employment settings of the individual opt-in ASMs weighed in favor of decertification. Id. at *22.

The Court also found that the second factor weighed in favor of decertification, as the application of the defenses denied on each Plaintiff’s specific job duties, and Plaintiffs failed to establish that they were “similarly situated.”  Id. at *22-23.  Finally, as to the third factor, “[b]ased on the material disparities within and among the opt-in’s discovery responses and deposition testimonies . . . individualized defenses and credibility concerns would result in at least dozens of the type of ‘mini-trials’ that undercut the efficacy and fairness of a collective action.” Id. at *24. Thus, for the same reasons as the Court found in considering the first and second factors, the Court found that the fairness and procedural considerations weighed against proceeding collectively, and granted Vitamin Cottage’s Motion to for decertification. Id.

The Court’s Decision On The Motion For Rule 23 Class Certification

In denying Plaintiff’s Rule 23(b)(3) Motion for class certification, the Court conducted a “rigorous analysis” under both Rule 23(a) and 23(b)(3), relying, in large part, on its findings in granting Vitamin Cottage’s Motion for decertification of Plaintiff’s FLSA claim. For starters, the Court cited the seminal ruling of Walmart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011).

Here, Plaintiff sought to certify a class for his unpaid overtime claim under CWCA. The Court noted that relevant state exemptions are similar, but not identical, to the FLSA exemptions discussed in the context of a Motion for decertification, and therefore required a separate, fact-intensive inquiry into the daily activities of an employee.

In considering the issue of commonality under Rule 23(a) together with the requirement of predominance under Rule 23(b)(3), the Court focused on whether the questions of law or fact common to class members predominated over any questions affecting only individual members, such that a class action would be superior to other available methods for fairly and efficiently resolving the controversy.

The Court held that while Vitamin Cottage’s uniform exemption policy showed that it considered the employees to be similar to at least some degree, a blanket exemption policy does not eliminate the need to make a factual determination as to whether class members are actually performing similar duties in the context of a misclassification claim.

Relying primarily on the briefing and exhibits associated with the Motion for decertification and the executive exemption as an illustration, the Court likewise found there were disparities in putative class members’ “supervisory” duties and hiring and firing authority.

In discussing the final element of the executive exemption, the Court noted an important difference between the Colorado executive exemption and the FLSA executive exemption: Whereas time spent performing exempt duties is not a dispositive element under the FLSA exemption, the Colorado executive exemption expressly requires the employees spend a minimum of 50% of the workweek in duties directly related to the supervision in order to qualify as exempt. Based on the evidence (i.e., deposition testimony and written discovery), the Court held there were plainly material disparities among the class members regarding the degree to which their day-to-day duties as ASMs involved supervisory or management-related objectives.

The Court reasoned that these material disparities went to the heart of liability in this matter – whether the class members were classified properly. And for that reason, the question of exemption was not capable of class-wide resolution. It further opined that due to the centrality of this question in the context of this case, whether other issues in the matter were capable of producing class-wide answers did not matter, as those issues did not predominate over the individualized question of whether each ASM was properly classified under Colorado law.

Ultimately, the Court held that for the same reasons it granted Vitamin Cottage’s Motion for decertification, Plaintiff did not meet his Rule 23 burden by relying on Vitamin Cottage’s common policies and procedures or uniform job description for ASMs.

Implications For Employers

The decision in Levine precisely delineates the standards for decertification of FLSA actions and certification of state law corollary class action claims. It also highlights the symbiotic nature of its analysis of these actions in the misclassification context and the important role that discovery plays in driving the outcome.

The Levine decision provides helpful guidance for employers that general uniform policies and procedures, such as the exemption policy analyzed by the Court in this case, are not enough to show that putative class or collective action members are actually performing similar duties. In order to withstand the Court’s “rigorous analysis,” an employer’s written discovery, such as interrogatory answers, and deposition testimony of putative class or collective action members must reflect that the specific duties and responsibilities of the putative class or collective action members at issue are uniform across-the-board.

By Gerald L. Maatman, Jr., Jennifer A. Riley and Kathryn R. Brown

Duane Morris Takeaways: In Clark v. A&L Homecare and Training Center, LLC, Nos. 22-3101, 3102 & 2023 WL 3559657 (6th Cir. May 19, 2023) a split three judge-panel for the U.S. Court of Appeals for the Sixth Circuit held that in actions brought under the Fair Labor Standards Act (FLSA), plaintiffs must show a “strong likelihood” of being “similarly situated” to other individuals allegedly subject to the same violations of the statute in order to secure certification of a collective action. The ruling should be a required read for companies involved in wage & hour litigation.

The new approach announced by the Sixth Circuit disrupts the plaintiff-friendly framework courts have applied for years to conditionally certify FLSA collective actions based on minimal evidence.  As the majority of the panel recognized, a court’s decision to issue notice in an FLSA collective action has the potential to expand the scope and cost of discovery to such a degree that defendants are compelled to settle, regardless of the merits of the claims at issue.  The “strong likelihood” standard gives district courts greater authority to test a plaintiff’s assertions of similarity before approving notice in an FLSA collective action.  As such, the ruling has major consequences for litigants in the Sixth Circuit, which covers Ohio, Kentucky, Tennessee and Michigan.

Case Background

The named plaintiffs brought a putative collective action under the FLSA against their former employer and its owners, challenging pay practices they alleged ran afoul of the FLSA’s overtime and minimum wage requirements.  The named plaintiffs filed a motion with the district court seeking conditional certification of three collective actions of employees alleged to have been subject to the same pay practices.  In an August 4, 2021 opinion, the district court granted plaintiffs’ motion as to two of the three proposed collective actions.  Holder v. A&L Home Care & Training Ctr., LLC, 552 F. Supp. 3d 731, 740 (S.D. Ohio 2021).  In conditionally certifying two collective actions, the district court applied the oft-used two-step framework set forth in Lusardi v. Xerox Corp., 118 F.R.D. 351 (D.N.J. 1987).

Under the Lusardi framework, named plaintiffs need only present what courts have described as a “modest factual showing” that similar potential plaintiffs exist to satisfy the first step, i.e., certification of a collective action on a conditional basis.  In the second step, assuming others have joined the lawsuit as opt-in plaintiffs and the parties have completed discovery on the merits, the district court makes a final determination whether the opt-in plaintiffs actually qualify as parties to the litigation on the basis of substantial similarity to the named plaintiffs in what is known as a second-stage final certification order.

The district court acknowledged that the Fifth Circuit in Swales v. KLLM Transport Services, L.L.C., 985 F.3d 430, 443 (5th Cir. 2021), had rejected the Lusardi approach in favor of “rigorous” enforcement of the similarity requirement in a single step, after a period of preliminary discovery. The Sixth Circuit declined to follow suit.  Recognizing district courts’ need for guidance on the standard for sanctioning notice to putative opt-in plaintiffs in FLSA cases, however, the district court certified its decision for immediate interlocutory review by the Sixth Circuit under 28 U.S.C. § 1292(b).  The Sixth Circuit accepted the appeal in order to address, for the first time, the legal issue of what a plaintiff needs to show in order to convince a court to allow notice to others of their ability to join the plaintiff’s FLSA lawsuit.

The Sixth Circuit’s Decision

The two-judge majority of the Sixth Circuit panel rejected both the Lusardi approach and the Swales approach.  Judges Kethledge and Bush endorsed a “strong likelihood” standard as the new framework to guide courts in the Sixth Circuit.  In an opinion concurring in part and dissenting in part, Judge White denounced the single-step approach in Swales and criticized the Lusardi approach as flawed, but found it unnecessary to adopt a new standard.

The majority opinion suggests that the new standard involves two steps.  Writing for the two-judge majority, Judge Kethledge analogized the showing of similarity required under the new standard to what a movant must show to secure a preliminary injunction, i.e., that, to a certain degree of probability, the movant will prevail on the underlying issue when the court makes its final decision whether to enjoin or not.  Judge Kethledge’s opinion focuses on the first step, which requires a named plaintiff to show it is strongly likely that members of the putative collective action are “in fact similarly situated” to the named plaintiff, without stating the contours of the second step.  The opinion cautions district courts to “expedite” ruling on motions for such notice in FLSA cases in light of the general two-year statute of limitations period for FLSA claims.  See 29 U.S.C. § 255(a).

Importantly, as to what district courts should consider in applying the new standard, the three judges on the Sixth Circuit panel found common ground.  The panel agreed that district courts should consider the impact of the different defenses to which potential members of the collective action may be subject in making the notice determination.  For example, whether some potential plaintiffs signed arbitration agreements and whether the statute of limitations would bar some potential plaintiffs’ claims are fair game in a district court’s decision whether to allow notice.

The two-judge majority of the panel vacated the district court’s August 2021 order and remanded for the district court to apply the new standard of “strong likelihood” of similarity to the named plaintiffs’ motion to notify members of the putative collectives.

Implications For Employers

The A&L Homecare decision is consequential because it ushers in a new, more defense-friendly threshold for sanctioning notice of a putative FLSA collective action lawsuit.  Plaintiffs litigating FLSA cases in the Sixth Circuit face a heavier burden to show they are similarly situated to the individuals they seek to notify of the lawsuit.  The ruling is also significant because it confirms that district courts should account for defenses that potentially differentiate the named plaintiffs from the putative opt-in plaintiffs in deciding whether the named plaintiffs have satisfied their burden to issue notice.

In A&L Homecare, the Sixth Circuit becomes the latest federal appellate court to abandon the long-used two-step approach set forth in Lusardi.  Just a month ago, in Matthews v. USA Today Sports Media Group, LLC, et al., No. 1:22-CV-1307 (E.D. Va.), a district court in the Fourth Circuit followed the Fifth Circuit’s approach in Swales, as we previously reported.

The absence of a unified approach among federal courts to the question of notice in collective actions derives in part from the FLSA statute itself.  The statute contemplates that “similarly situated” others may join a lawsuit asserting claims under the FLSA, but says nothing about the process by which they may do so.  See 29 U.S.C. § 216(b).

It remains to be seen whether other federal courts will abandon the plaintiff-friendly approach of Lusardi in favor of the one-step standard in Swales, the “strong likelihood” standard in A&L Homecare, or yet another standard.  Given the disparate approaches of federal district and appellate courts, the legal question of a plaintiff’s showing of similarity to members of a putative collective action may well land on the Supreme Court’s docket.

 

 

By Gerald L. Maatman, Jr. and Emilee Crowther

Duane Morris Takeaways: In American Campus Communities, Inc. v. Berry, No. 21-0874 (Tex. Apr. 21, 2023), the Texas Supreme Court unanimously reversed the trial court’s class certification order and disposed of the appeal on the grounds Plaintiffs’ claims were facially defective.  In rendering its decision, the Texas Supreme Court emphasized that both district and appellate courts, to comply with Texas Rule of Civil Procedure 42 (“Rule 42”), must examine the substantive law underlying Plaintiffs’ claims prior to granting or affirming class certification.  The Texas Supreme Court’s decision in this case ultimately serves as a roadmap for trial and appellate courts – as well as counsel for defendants – to ensure a meaningful and rigorous analysis of “the claims, defenses, relevant facts, and applicable substantive law” underlying Plaintiff’s claims prior to granting class certification under Rule 42.

Case Background

American Campus Communities, Inc. and its related companies (“ACC”) own and manage student housing properties throughout the United States.  Plaintiffs, four former tenants of ACC’s properties in Texas, filed suit against ACC alleging it omitted language from its leases required under Section 92.056(g) of the Texas Property Code, and requested the trial court to certify a class of 65,000 former ACC tenants whose leases did not include the required language.

In addition to opposing the class certification, ACC moved for summary judgment on Plaintiffs claims. It contended that the Property Code does not create strict liability for an omission of the required statutory language.  The district court denied ACC’s summary judgment and granted Plaintiff’s motion for class certification.  The court of appeals affirmed a modified version of the trial court’s order, and authorized class-wide litigation on Plaintiffs asserted statutory strict liability claim regarding the omitted lease term.  Neither the district court nor the court of appeals analyzed the substantive law governing Plaintiffs’ proposed class claims.

The Texas Supreme Court’s Decision

On further appeal, the Texas Supreme Court spent the majority of its opinion addressing the obligation of a district trial and appellate court to conduct a meaningful and rigorous analysis of “the claims, defenses, and applicable substantive law” underlying a Plaintiff’s claims prior to granting class certification under Texas Rule 42.  Id. at 6-7 (quoting Sw. Refin Co. v. Bernal, 22 S.W.3d 425, 435 (Tex. 2000) (emphasis original)). The Supreme Court held that the failure of the district court and appellate court to analyze the applicable substantive law underlying Plaintiffs claims prior to class certification was error and “an example of the ‘certify now and worry later’ approach to class certification.” Id. at 10 (citing Bernal, 22 S.W.3d at 435 and BMG Direct Mktg., Inc. v. Peake, 178 S.W.3d 763, 778 (Tex. 2005)).  For courts to comply with their obligations under Rule 42, they must rigorously scrutinize the legal underpinnings of the alleged class claims prior to class certification.

This rigorous analysis, the Supreme Court held, is required even when it is entangled with the merits, as a “court’s duty under Rule 42 to conduct a meaningful analysis of the proposed claims . . . is more fundamental than . . . avoiding premature resolution of the merits.”  Id. at 15.  While the Supreme Court made clear that a court should not decide the merits of the case in a class certification analysis, it must still understand the law governing the Plaintiffs claims and “gauge the claim’s suitability for class resolution on the basis of that understanding.” Id. at 14.

Due to the failure of the district court and appellate court to analyze the governing law at the class certification stage, the Supreme Court analyzed the substantive law at issue in the case, and ultimately held that class certification was improperly granted as “a proper understanding of the substantive law applicable to the proposed class claims indicates that no such claims exist.” Id. at 19.

Implications For Employers

The Texas Supreme Court’s decision in American Campus Communities, Inc. teaches various lessons.  It serves as a reminder that class certification on claims that are not supported by underlying substantive law is legally invalid.  For Defendants, it underscores the importance of analyzing the merits of claims at the beginning of the lawsuit, and of moving for a summary judgment on the merits of the underlying claims before class certification.

By Michael DeMarino and Gerald L. Maatman, Jr.

Duane Morris Takeaways –  In McCarthy v. Medicus Healthcare Sols., LLC, No. 1:21-CV-668, 2023 WL 2989051, at *1 (D.N.H. Apr. 18, 2023), the U.S. District Court for the District Court of New Hampshire granted conditional certification of a collective action consisting of physician recruiters who alleged that they did not receive overtime wages for all earned overtime hours in violation of the FLSA.  Although the plaintiff’s motion for conditional certification came late in the procedural posture of the case, the Court nonetheless applied the more lenient first-stage conditional certification standard often relied upon in FLSA collective actions. The decision in McCarthy is an important one as it highlights the ongoing battle between litigants over the standard for conditional certification of a FLSA collective action when the parties have engaged in significant discovery.

Background Of The Case

Plaintiff, a recruiter, worked for Medicus, a nationwide physician recruitment and medical staffing company.  Plaintiff alleged that Medicus misclassified him and other alleged similarly-situated employees as a “non-exempt” employee under the FLSA, and failed to pay him overtime compensation for working over 40 hours in a workweek in violation of the FLSA.

Prior to answering the complaint, Medicus twice moved to dismiss the original complaint on statute of limitations grounds.  The Court denied those motions, Medicus answered the complaint, and the parties proceeded to discovery.  During discovery, the parties unsuccessfully attempted to resolve the dispute at mediation. Afterwards, Plaintiff filed his motion for conditional certification of a collective action.

The Court’s Ruling

In opposing Plaintiff’s motion for conditional certification, Medicus argued that because Plaintiff filed the motion “near the end of the case” and the parties had engaged in “extensive discovery,” the Court should apply the heightened standard applicable to the later, decertification stage.  Under that standard, which typically occurs after the defendant moves to decertify the collective action, the Court makes “a factual determination as to whether there are similarly-situated employees who have opted in.”  Id. at *2.

In response, Plaintiff argued that he should “not be prejudiced for pausing the litigation (and delaying the filing of this motion) to attempt to resolve the case at a pre-certification mediation, and the more lenient first-stage standard should apply.”  Id.  Under this standard, “Plaintiffs bear the light burden of demonstrating that there is a reasonable basis for their claim that there are other similarly-situated employees.”  Id. at *1.

The Court agreed with Plaintiff. It concluded that Plaintiff provided a “reasonable explanation for the alleged delay in filing.” Id. at *4.  The Court also noted that numerous case law authorities had “applied the lenient standard under similar procedural circumstances, including after the parties engaged in substantial discovery.” Id. at *3. The Court opined that because conditional certification is ultimately a “case management tool,” it has broad discretion to manage its cases and apply the lenient first-stage standard.  Id. at *4.

Applying the lenient first-stage standard, the Court rejected Medicus’s arguments that inconsistencies in Plaintiff’s evidence precluded conditional certification and that certain facts admitted in Plaintiff’s deposition give rise to individualized defenses. Instead, the Court held that for “purposes of this motion,” it need not “resolve factual disputes, decide substantive issues going to the ultimate merits, or make credibility determinations.’” Id. at *8.  Over Medicus’s objection, the Court granted Plaintiff’s motion for conditional certification.

Implications For Companies Facing FLSA Collective Actions

The ruling in McCarthy underscores how the first-stage and second-stage certification standards in FLSA actions can impact the case and drive the decision whether to send FLSA notice to potential collective action members.  Although the defendant was ultimately unsuccessful in getting out from under the lenient first-stage standard, corporate defendants facing FLSA collective actions still should push for the heightened second-stage standard when the parties have engaged in some amount of discovery.  Whether a court will apply the first or second-stage standard generally will turn on the amount of discovery conducted and the reason for plaintiff’s delay in moving for conditional certification.

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Rebecca S. Bjork

Duane Morris Takeaways: On April 14, 2023, U.S. District Court Judge T. S. Ellis, III joined in the fray over whether the long-used two-step process for issuing notice of a Fair Labor Standards Act (“FLSA”) collective action is consistent with the text of the statute.  In Mathews v. USA Today Sports Media Group, LLC, et al., No. 1:22-CV-1307 (E.D. Va.), he held that it is not.  Judge Ellis ordered the parties to engage in limited discovery to establish a factual record upon which he can decide whether members of the plaintiff’s proposed collective action are, in fact, “similarly situated.”  If – and only if – he concludes they are, he would then issue a notice allowing such persons to opt-in to the collective action.  This ruling is significant because it follows a similar decision by the U.S. Court of Appeals for the Fifth Circuit in 2021, and the Sixth Circuit is currently considering an appeal raising the same issue.  Thus, momentum may be building for the U.S. Supreme Court to ultimately step in and settle the issue. The one-step or two-step process is far from academic, for it has everything to do with litigation costs and risks, and the leverage flowing from a win or a loss in the certification battle.

Case Background

Plaintiff filed a collective action lawsuit under the FLSA alleging that USA Today Sports Media Group, LLC (“USA Today”) and Gannett Co., Inc. unlawfully classified her and others like her as independent contractors, and thus denied them overtime pay.  From January 2017 to August 2021, Plaintiff was the Site Editor for the Seahawks Wire website, USA Today’s website covering the NFL franchise Seattle Seahawks.  In her role, Plaintiff alleges that she and other “similarly situated” Site Editors for other teams all signed the same “Editor Agreement” with USA Today, and that they all engaged in similar duties such as “writing, editing and publishing sports news articles regarding their respective teams; managing others; editing other people’s articles; and making social media posts regarding articles they had written.”  (Slip Op. at 2.)  She submitted three declarations signed by herself and two others working as site editors for other teams, along with a motion for “conditional certification” of her FLSA collective.  (Id.)

USA Today responded by submitting declaration evidence to show that Site Editors have freedom to create their content including how long their articles are, the tone they take, how many are posted each day, et cetera.  (Id. at 3.)  It also noted that it did not provide any office space, tools, feedback, performance evaluations, or supervisors to Site Editors, and also allowed them to write for other websites. (Id.)  In other words, USA Today submitted evidence to show that under the applicable test for deciding whether someone is an independent contractor, Site Editors meet that standard, so they are not misclassified.

As is typical, Plaintiff argued that her lawsuit should proceed immediately as a collective action by issuance of an order sending notice to all of the other Site Editors around the nation.  She maintained that she had submitted sufficient evidence under a lenient first step standard in a two-step process that they are all “similarly situated.”  (Id. at 1, 4.)  Under a test established in 1987 by Lusardi v. Xerox Corp., 118 F.R.D. 351 (D.N.J. 1987), Plaintiff contended that step one is an “initial ‘notice stage’ determination” that members of the proposed collective action are similar enough to receive a notice of the action and be given the opportunity to opt in.  (Id. at 4 (citing Thiessen v. Gen. Elec. Capital Corp., 267 F.3d 1095 1102 (10th Cir. 2001).)  Under this view of the FLSA, a plaintiff need only show “substantial allegations” that they are “victims of a single decision, policy or plan” in order for a notice to be sent – in this case, to all Site Editors nationwide.  (Slip Op. at 4.)  Plaintiffs then usually receive the right to conduct complete discovery, after which defendants may file a motion to “decertify” the collective action, based on evidence developed during the discovery process.

USA Today responded that the Court should follow the Fifth Circuit’s recent decision in Swales v. KLLM Transp. Servs., LLC, 985 F.4th 430 (5th Cir. 2021), which rejected the longstanding approach developed in Lusardi.  (Slip Op. at 4.)  It argued that the two-step approach has no basis in the statutory language of the FLSA.  Rather, it emphasized that the court must instead make a sound factual determination as to whether proposed opt-in plaintiffs are, in fact, similarly situated and that requires discovery targeted solely to that inquiry.  (Id.)

The Court’s Decision

Judge Ellis agreed with USA Today.  He ruled that the parties must engage in discovery directed to establishing whether or not Site Editors around the country are similarly situated with regards to their work, the supervision provided (or not) by USA Today, along with the other relevant factors to establish that they were misclassified as independent contractors.  He began by noting that the Fourth Circuit had not adopted the Lusardi test, nor had it commented on the Fifth Circuit’s decision in Swales.  Rather, the Fourth Circuit has simply stated that district courts have discretion to manage the notice process in FLSA collective actions.  (Id. at 5.)  Judge Ellis decided that “the correct approach then, as noted by the Fifth Circuit, is the one authorized by FLSA’s text.  Courts must determine, at the outset, whether a proposed collective action is ‘similarly situated’ to the named plaintiffs.  To make this determination, courts may require limited discovery, targeted only at the factual and legal considerations needed to make the ‘similarly situated’ determination.”  (Id. at 6.)  He then ordered discovery only of the following – from the plaintiffs the Schedule C or W-2 forms of the named plaintiff and two declarants relating to their work writing sports media blog posts; any employment contracts, offer letters or agreements relating to their work; and one three-hour deposition; and from the defendants the independent contractor agreements; policy documents relating to the independent contractor arrangement; an organizational chart; a three-hour long Rule 30(b)(6) deposition; and a three-hour long deposition of defendants’ declarant filed in opposition to plaintiff’s motion.  (Id. at 6-7).  The discovery must be completed by May 26, 2023.  (Id. at 6.)

Implications For Employers

Our annual class action review analyzed FLSA conditional certification rates, and plaintiffs won 82% of first stage conditional certification motions, but only 50% of second stage motions. Our previous post on these statistics is here. Hence, the stakes are quite meaningful in terms of the approach outlined in the Matthews ruling.

As any employer who has been sued by a named plaintiff seeking to represent an FLSA collective action knows, the discovery burden imposed by application of the two-step Lusardi decision is far more onerous than what Judge Ellis established in this case.  Full merits discovery lasting more than a year is common, as opposed to a narrowly-targeted investigation of the work performed by the plaintiffs along with facts relating to the relevant independent contractor factors.  For that reason alone, employers with operations within the Fourth Circuit will be happy to know they can cite Judge Ellis’ ruling in the future.  While no one can predict the future with any degree of certainty, it seems likely that this new legal trend regarding the collective action notice process may eventually need to be resolved by the U.S. Supreme Court.

By Gerald L. Maatman, Jr., Shaina Wolfe, and Aaron A. Bauer

Duane Morris Takeaways: In Eddlemon v. Bradley University, No. 20-01264 (7th Cir. Apr. 12, 2023), the U.S. Court of Appeal for the Seventh Circuit vacated an Illinois federal district court’s class certification order because it failed to conduct a “rigorous analysis” of each of the Rule 23 factors – numerosity, commonality, typicality, and adequacy of representation. A student alleged, among other things, that during the COVID-19 pandemic, Bradley University breached its implied contract with students by shortening the Spring 2020 semester and continuing to charge students full tuition, and was unjustly enriched by charging students for their unused activity fees. The district court granted class certification to students that paid full tuition and activity fees for the Spring 2020 semester. The Seventh Circuit held that the district court did not thoroughly evaluate the Rule 23 factors because it relied only on the pleadings and failed to ensure that the plaintiff had met each of the required factors. The Seventh Circuit’s decision serves as a reminder that plaintiffs must offer sufficient evidence and show how each of the Rule 23 factors are met, and district courts must rigorously analyze the Rule 23 requirements prior to certifying a class action.

Case Background

With the unexpected onset of COVID-19 during the Spring Semester of 2020, Bradley University, like many other schools, transitioned from in-person to remote learning. To facilitate the transition, the university extended its Spring break, which in-turn, shortened the school’s 15-week spring semester to 14 weeks.

A student sued the university for breach of an implied contract because the university charged students full tuition despite the shortened semester. The student alleged that the university’s class catalog served as a contract that entitled the student to 15 weeks of education. The student also alleged that the university was unjustly enriched by the collected student activity fees because students did not attend any on-campus activities. The student sought class certification on behalf of the 7,759 other students.

The U.S. District Court for the Central District of Illinois granted Rule 23 certification of two classes, including: (1) students whose Spring 2020 semester was shortened, and (2) students who paid the Spring 2020 semester activity fees.  The university filed a Rule 23(f) appeal with the Seventh Circuit, challenging the district court’s analysis of the commonality and predominance requirements. The university argued that the district court erred in granting class certification because it relied solely on the student’s pleadings without assessing the record. The university also argued that the district court failed to identify or separately analyze the student’s claims.

The Seventh Circuit’s Ruling Vacating Class Certification

The Seventh Circuit vacated the district court’s class certification order and remanded for further proceedings. The Seventh Circuit agreed with the university’s two main arguments.

First, the Seventh Circuit noted that “[t]he district court’s certification order does not reveal whether the court examined the record,” but that the district court repeatedly referred to the student’s allegations without addressing his purported evidence (e.g., the university’s class catalog) or examining how the student would prove his allegations with common evidence. The Seventh Circuit held that the district court’s certification order, therefore, rested on an error of law and amounted to an abuse of discretion because Rule 23 required it to “go beyond the pleadings.”

Second, the Seventh Circuit explained that the district court’s analysis was incomplete because it did not identify or separately analyze the elements of plaintiff’s claims, which is critical to the predominance analysis. The Seventh Circuit emphasized that the district court failed to note the elements of the student’s claims. Instead, the district court listed only one common question for each class without explaining the question’s “relative importance” to each claim, whether any individual questions existed, or how the common question predominated over individual questions. The Seventh Circuit opined that the district court’s analysis was “fatal,” and reiterated that a “one size (or one claim approach) is at odds with the rigorous analysis required at the class certification stage.”

Finally, the Seventh Circuit took the “opportunity” to clarify that, at the certification stage, the district court may only consider the merits of a claim to the extent it is relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.

Implications for Employers

The Seventh Circuit’s decision in Eddlemon serves as important reminder that plaintiffs must support their motions for class certification with a “preponderance of the evidence” and district courts must conduct a “rigorous analysis” of the evidence in the record. To defeat class certification, defendants should emphasize the importance of each Rule 23 factor and attempt to show why, under a rigorous analysis, the plaintiff’s class claims should not be certified.