Supreme Court Ruling on Employee’s Lawsuit Will Also Affect Rule 23 Class Action Cases

by Ballard Spahr LLP
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In a decision that has broad implications beyond its labor law context, the U.S. Supreme Court held on April 16, 2013, that an employee plaintiff in a collective action whose individual claim was mooted by her employer’s offer of judgment had “no personal interest in representing putative, unnamed claimants, nor any other continuing interest that would preserve her suit from mootness.” The offer of judgment, made under Rule 68 of the Federal Rules of Civil Procedure, occurred before the plaintiff moved for conditional certification of a class under the Fair Labor Standards Act (FLSA).

In Genesis HealthCare Corp. v. Symczyk, by a 5-4 vote, the Court reversed the Third Circuit and held that the plaintiff’s putative collective action claim was properly dismissed by the district court for lack of subject matter jurisdiction. The decision represents a victory for employers defending FLSA collective actions.

Even though, as the Supreme Court noted, there are differences between Rule 23 “opt-out” class actions and FLSA collective actions that bind only those employees who affirmatively “opt-in” to the case, Genesis HealthCare should also significantly benefit corporate defendants who defend consumer class actions brought under Rule 23. Courts have been divided on whether a Rule 68 offer of judgment made before a class certification motion is filed moots a plaintiff’s putative class claims.

The Seventh Circuit has held that a Rule 68 offer of judgment in full satisfaction of the plaintiff’s alleged damages, made before the filing of a class certification motion, moots the plaintiff’s individual and class action claims and requires dismissal of the action for lack of subject matter jurisdiction. Several other circuits disagree and hold that the named plaintiff should be given an opportunity to pursue a class certification motion even though a Rule 68 offer has been served and that such a motion, once filed, would “relate back” to the filing of the complaint.

In Genesis HealthCare, the Court distinguished certain “relation back” cases that the plaintiff relied on as being limited to situations in which the plaintiff’s claim, if dismissed, would evade judicial review because the conduct in question was “inherently transitory.” By contrast, the plaintiff’s claim for monetary damages was not inherently transitory, and its dismissal before the filing of a conditional certification motion would not prevent putative class members from filing their own suits for damages, as if the named plaintiff’s suit “had never been filed at all.” 

Many, if not most, of the courts that have refused to dismiss the named plaintiff's claim as moot in Rule 23 class action cases relied on the same cases distinguished by the Court in Genesis HealthCare. They also formulated a "relation back" theory premised on the assumption that small monetary claims of putative class members are "transitory" in the sense that they would evade judicial review unless they were pooled in a class action. Genesis HealthCare undercuts that reasoning. Moreover, in AT&T Mobility v. Concepcion, the Supreme Court rejected the argument that "class proceedings are necessary to prosecute small-dollar claims that might otherwise slip through the legal system." Therefore, a very strong argument now exists that a Rule 23 class action should be dismissed for lack of jurisdiction where the named plaintiff has been served with a Rule 68 offer that fully satisfies the named plaintiff’s claims.

Also supporting corporate defendants in the Rule 23 context is the Supreme Court’s reiteration of “well-settled mootness principles.” Article III, Section 2, of the Constitution limits the jurisdiction of the federal courts to “Cases” and “Controversies.” Moreover, “an actual controversy” must be present at all stages of the litigation, “not merely at the time the complaint is filed.” When an intervening event, such as a Rule 68 offer of judgment, eliminates a plaintiff’s personal stake, “the action can no longer proceed and must be dismissed as moot.”   This logic would also support dismissal of a Rule 23 putative class action where the named plaintiff has received a Rule 68 offer of judgment that fully satisfies the named plaintiff’s claim.

On May 6, 2013, Ballard Spahr will hold a webinar, “How Supreme Court’s Decision Dismissing Class Claim Affects FLSA Collective Actions and Rule 23 Class Actions,” from 12 p.m. to 1 p.m. ET. More information on the webinar and a link to register can be found here.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in class action litigation defense and avoidance. The CFS Group also produces CFPB Monitor, a blog that focuses exclusively on important Consumer Financial Protection Bureau developments. To subscribe to the blog, use the link provided to the right.

For more information, please contact Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, Mark J. Levin at 215.864.8235 or levinmj@ballardspahr.com, or Mariah E. Murphy at 856.873.5503 or murphym@ballardspahr.com.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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