Authored By Robert Whitman

Seyfarth Synopsis: The Second Circuit will soon decide key issues for FLSA practitioners: whether settlements pursuant to an Offer of Judgment are subject to court review and approval, and whether the standards for final collective certification of FLSA claims are different from those for class certification of state law wage claims under Rule 23.

Two cases now before the Second Circuit, one involving a small Japanese restaurant, the other involving Mexican fast-casual chain Chipotle, offer the court the opportunity to experience the gustatory pleasures of two prime cuts of FLSA procedural law: enforceability of settlements and the standards for collective certification. It is a veritable feast for wage and hour geeks in the New York metropolitan area and beyond.

In Yu v. Hasaki, the court on October 23 accepted for interlocutory review the question of whether a district court must approve the settlement of FLSA claims when the settlement is procured through an Offer of Judgment under FRCP 68.

Yu involves FLSA and New York Labor Law claims by a sushi chef. To settle the case, the defendants made an offer of judgment, which the plaintiff accepted. After the parties advised the court, Judge Jesse Furman ordered them to submit their agreement for his approval, along with letters explaining why the settlement is fair and reasonable. The defendants objected, arguing that, under Rule 68, court approval of an accepted offer of judgment is mandatory, leaving no role for the judge in reviewing the agreement’s terms. They based their argument on the language in Rule 68 that, if a plaintiff accepts an offer, the clerk “must then enter judgment.”

In effect, the defendants contended that Rule 68 creates an exception to the Second Circuit’s decision in Cheeks v. Freeport Pancake House, in which the court held that judicial approval of settlement terms is mandatory for dismissal of FLSA claims with prejudice and that many otherwise-customary settlement provisions, such as confidentiality and general releases, are not permissible. The U.S. Department of Labor weighed in as an amicus curiae, arguing that judicial approval is required, even when the settlement arises out of an accepted Rule 68 offer.

Judge Furman agreed, holding that the concerns articulated in Cheeks apply equally under Rule 68 as they do in standard FLSA settlements. But because other district judges had held differently, he certified his order for interlocutory appeal under 28 U.S.C. § 1292(b), holding, among other things, that there was a substantial basis for disagreement on the issue. The Second Circuit accepted the case for review, stating that the decision “clearly merits interlocutory review under section 1292(b), as Judge Furman sensibly recognized.”

In Scott v. Chipotle, the appeals court is considering whether to address an issue that has long vexed FLSA litigators: whether the standard for final collective action certification under 29 U.S.C. § 216(b) differs from the standard for class certification under Rule 23.

The plaintiffs in Scott are apprentices – managerial trainees – at Chipotle restaurants in several states. They sued under the FLSA and state law, claiming they were misclassified as exempt managers because they spent most of their time filling orders and operating cash registers. District Judge Andrew Carter granted conditional FLSA certification, and 516 employees opted in. But after discovery, the court refused to grant final FLSA certification, and likewise denied Rule 23 class certification of the state law claims, holding that the responsibilities of the seven named plaintiffs did not match those of the putative class or collective.

The plaintiffs appealed the state law class certification decision as of right under Rule 23(f). They also sought permission from Judge Carter to take an interlocutory appeal of his FLSA final certification ruling, contending that the court’s twin rulings highlighted a “rift” between the certification standards for FLSA and non-FLSA wage and hour claims that the Second Circuit could resolve. While disagreeing with the plaintiffs’ argument, Judge Carter nonetheless observed that they had indeed “point[ed] to controlling questions of law which may have substantial grounds for a difference of opinion,” and granted permission.

It is now up to the Second Circuit whether to allow the interlocutory appeal. If it takes the case, it will have the opportunity to issue a combined opinion, addressing both Rule 23 and section 216(b), that clarifies the standards for final certification under both regimes.

Whether one’s preferences run to wasabi or jalapeno, these cases are sure to satisfy even the hungriest of wage and hour lawyers.

 

Authored by Noah Finkel

The Tampa Bay Buccaneers had a tough week last week.  It wasn’t just their loss to the Detroit Lions.  Defeats on Sundays are something with which the Bucs have grown accustomed.  Rather, last week the 11th Circuit Court of Appeals held that the Bucs’ attempt to have an adverse judgment against themselves would not end a class action lawsuit they faced.

Why is it that the Bucs can’t even succeed in losing a lawsuit?  It has a lot to do with the intricacies of Federal Rule of Civil Procedure 68, and dual standing that a class representative carries under Federal Rule of Civil Procedure 23.

In short, the Bucs made a Rule 68 offer of judgment for full relief to a class representative in a Telephone Consumer Protection Act putative class action in an attempt to moot the case.  The 11th Circuit in Stein v. Buccaneers Limited Partnership held that the case could nevertheless proceed as a class action.  A post earlier this week from our colleagues on Seyfarth Shaw’s Workplace Class Action blog explains the details, and makes the point that employers defending any sort of workplace class action need to be cognizant of this ruling.

The ruling bears further examination for its potential effects on wage-hour cases.  Trying to moot a wage-hour collective or class action is often an attractive strategy for an employer.  Many of the cases involve relatively low potential liability to the named plaintiff(s) and/or class representative(s), but involve significant exposure when that potential liability is multiplied by the number of current and former employees who might participate in the class or collective action.  By offering complete relief to a named plaintiff in an FLSA collective action, an employer can cause a court to hold that no case or controversy exists, and thus a court loses jurisdiction of a case and must dismiss it before it blossoms into a collective action.  The Supreme Court’s Genesis Healthcare Corp.’s ruling makes this clear, and so does a post-Genesis Fifth Circuit ruling.

But the Stein case illustrates the limits to Genesis in wage-hour cases, and raises the question of whether employers should ever use Rule 68 at all in the wage-hour context.  A simple offer of complete relief may be the better move.

First, in Stein, the 11th Circuit joined the 3rd, 5th, 9th, and 10th Circuits in holding that a Rule 68 offer of full relief to a class representative does not moot a Rule 23 class action.  This is significant because so many wage-hour cases are now filed under state wage-hour laws, and use Rule 23 to attempt to obtain a class action.  (The 7th Circuit has held to the contrary in Damasco v. Clearwire Corp., but its holding doesn’t help employers much because it further held that a Rule 68 offer won’t moot a class action if a motion for class certification is filed first, even if that motion is a perfunctory one on which briefing is stayed.  Accordingly, careful plaintiffs’ lawyers in the 7th Circuit now file Damasco motions for class certification at the same time they file the complaint, even though briefing on that motion won’t occur usually for more than a year later.)  Thus, in many circuits, an offer of complete relief under Rule 68 won’t moot a case in a wage-hour action that includes a Rule 23 claim under state law.  It only potentially may work in a collective action brought solely under the FLSA.

Second, Stein shows that, even in an FLSA collective action context, Rule 68 may be a poor vehicle for an employer to make an offer of full relief.  Under Rule 68, an offer not accepted within 14 days is considered withdrawn.  Thus, the 11th Circuit held in Stein, an unaccepted offer no longer moots a claim after 14 days because it technically no longer exists. Rule 68 also requires that a defendant-employer take a judgment against itself.  This causes two problems:  (a) taking an adverse judgment could complicate matters for a company in future lawsuits or DOL investigations, in government contracting, or in obtaining financing or completing other types of transactions; and (b) when a judgment is entered against an employer under the FLSA, the plaintiff is considered to have prevailed in the case, and thus is entitled to an award of reasonable attorneys’ fees for which an employer is liable.  If the offer is made early, these fees may not be significant.  But many employers find that, in this context, some (but not all) plaintiff’s attorneys seem to have a “heavy pencil” when completing their time sheets.

There is a better way.  Just make an unconditional offer of complete relief to the plaintiff.  Even include a check. There is no need to invoke Rule 68.  At least in some circuits, such an offer in a single-plaintiff, multi-plaintiff, or collective action context — whether accepted or unaccepted — can moot a case even when Rule 68 is not in the picture.  The 7th Circuit, for example, has made this clear on multiple occasions.  This provides two benefits.  First, there’s no judgment against the employer.  Rather, the case gets dismissed for lack of jurisdiction due to mootness.  Second, there is no liability for fees.  Under the FLSA, only prevailing plaintiffs are entitled to attorneys’ fees.  But when a case is dismissed as moot and a plaintiff is not awarded a favorable judgment, the Supreme Court has held that there is no entitlement to fees.

At bottom, Rule 68 should have no role in attempting to moot a wage-hour case in most circuits.  If the case includes class action allegations under state wage-hour law, a Rule 68 offer of complete relief doesn’t moot the putative class action.  And if the case is a pure FLSA collective action claim, an offer of complete relief — without resort to Rule 68 — may moot a case without carrying the baggage that Rule 68 offer brings.  And even then, an employer has to weigh whether it should try to moot a named plaintiff’s FLSA claim.  Other potential plaintiffs may be waiting in the wings anyway, and an offer of full relief to the first current or former employee who files a claim risks putting “blood in the water” and also making an enemy of a plaintiff’s counsel. As with virtually any strategy decision, whether to try to moot a case must be decided on a case-by-case basis.

Co-authored by Gerald L. Maatman, Jr. and Scott Rabe

“Sometimes surrender is the best option.”  That is how Judge Raymond J. Dearie of the U.S. District Court for the Southern District of New York described how the Rule 68 Offer of Judgment may be used by employers to pay—i.e., “pick off”—individual plaintiffs to defeat a broader and significantly more costly FLSA collective action in his recent opinion in Anjum v. J.C. Penney Co., Inc.. The Anjum decision provides the most fulsome analysis of the current state of the law in the Second Circuit regarding Offers of Judgment made in FLSA cases following the Supreme Court’s important decision last year in Genesis Healthcare Corp. v. Symczyk, which we wrote about here. And the decision provides hope for employers that the Offer of Judgment “pick off” strategy may be used with great effect to eliminate FLSA collective actions early and at far less cost.

Facts Of The Case

In Anjum, defendant J.C. Penney made offers of judgment to all named plaintiffs in a FLSA collective action. The named plaintiffs rejected the offers, and J.C. Penney moved to dismiss the action as moot. After the original offers of judgment were made and rejected, more than fifty new plaintiffs opted-in to the suit. The Court denied J.C. Penney’s motion on two primary bases: (1) the Court found that there was a question of fact as to whether J.C. Penney’s offers of judgment fully satisfied each of the Plaintiff’s claims, and (2) even if complete offers of judgment had been made, the case was not moot because more than 50 opt-ins joined the lawsuit before judgment had been entered, and a matter is not moot, and the Court retains subject matter jurisdiction, until judgment is entered.

Lessons Of The Ruling

Notwithstanding the result in Anjum, the decision provides significant fodder for employers looking to shortcut a potentially onerous and expensive FLSA collective action by using the offer of judgment.

(1)  Anjum re-emphasizes that the “pick off” is a legitimate strategy for obtaining dismissal of FLSA actions.

The Court in Anjum not only rejected the notion that a “pick off” strategy is disfavored in the FLSA context, it blessed the strategy as a legitimate means for employers to potentially avoid the significant cost of litigating and settling a FLSA collective action. Employers should, therefore, evaluate the feasibility of an early “pick off” strategy as a means of short-cutting a potentially expansive and costly FLSA collective action.

(2)  The “pick off” strategy applies even if a motion for conditional certification is pending.

The Court in Anjum not only endorsed the “pick off” as a valid means of defeating FLSA collective actions, but also opined that the “relation back” doctrine also does not apply in the FLSA context. The “relation back” doctrine stands for the proposition that after class certification is granted, an event in the interim that moots the named plaintiffs’ claims does not moot the entire lawsuit.  Anjum re-emphasized what the Supreme Court said in Genesis Healthcare, that the “relation back” doctrine did not apply to FLSA cases because of the fundamental differences between a Rule 23 class and a FLSA collective. But Anjum went even further to state that an offer of judgment could moot a FLSA case even where there was a pending motion for conditional certification. This will likely have broad impact in the FLSA context, as it will prevent Plaintiffs from filing motions for conditional certification shortly after filing a complaint so as to prevent employers from making viable offers of judgment.

(3) Timing is important!!

Anjum also underscores that a Court retains subject matter jurisdiction over a FLSA case even after offers of judgment have been made fully satisfying all Plaintiffs’ claims up until the point the Court enters judgment on the basis of mootness. In other words, after making a complete offer of judgment, an employer must move for dismissal and await judgment from the Court before the matter is mooted. The practical effect of this rule is that opt-ins may continue to join the lawsuit before entry of judgment so as to prevent a finding of mootness. Therefore, to maximize the potential benefit, employers should make offers of judgment sooner than later, before potential plaintiffs are aware of the lawsuit, and if at all possible, before notice is distributed to potential members of the collective, and quickly move to dismiss the action following expiration or rejection of an offer. Employers should also be prepared to make immediate supplemental offers of judgment to opt-ins that join the lawsuit after the original offers have been made to prevent plaintiffs from defeating the motion to dismiss by adding new plaintiffs.