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3rd Cir. Clarifies Procedure for ‘Hybrid Wage-and-Hour’ Aggregate Litigation

In a “hybrid wage-and-hour” action brought by mortgage loan officers (MLOs), the U.S. Court of Appeals for the Third Circuit recently:  1) reiterated its prior holding that “an FLSA opt-in collective action is not, by its nature, incompatible with a parallel state law Rule 23 opt-out class action”, and 2) held that the trial court should not have required a trial in the FLSA opt-in collective action before deciding Rule 23 class certification on the parallel state-law claims.

A copy of the opinion in In re Citizens Bank, N.A. is available at:  Link to Opinion.

This lawsuit involved claims by current and former MLOs against their mortgage lender employer, simultaneously alleging violations of the federal Fair Labor Standard Act (FLSA) as an opt-in collective action, and violations of parallel state laws as a Fed. R. Civ. Pro. 23(b)(3) opt-out class action.

Previously in the litigation, the trial court conditionally certified the FLSA collective action, and 351 of over 1,000 MLOs opted in and consented.  The trial court then scheduled the trial. The plaintiffs then filed an amended complaint asserting various state labor and employment law claims, and a motion for class certification as to the state-law claims under Rule 23.

The employer responded by opposing Rule 23 class certification and seeking decertification of the FLSA collective action. A special master was appointed who recommended certifying the Rule 23 class, denying the motion for decertification of the FLSA collective action, and granting final FLSA certification. The trial court adopted these recommendations.

The employer then filed a Rule 23(f) petition seeking permission to appeal the class certification. The petition was granted by the Third Circuit.

In the Rule 23(f) appeal, the Third Circuit noted numerous flaws in the trial court’s consideration of the Rule 23 class certification issues. As a result, the Third Circuit reversed the trial court’s class certification ruling and remanded with instruction that the trial court must “conduct a ‘rigorous’ examination of the factual and legal allegations underpinning [the] claims before deciding…class certification.”

The Third Circuit, however, declined to consider the FLSA collective action certification, reasoning that “Rule 23 class certification and FLSA certification are different creatures.”

On remand from the Rule 23(f) appeal, and notwithstanding the Third Circuit’s instruction, the trial court chose not to return to the question of class certification and instead to proceed with the scheduled trial. The employer again objected, moving to stay the trial until after the reconsideration of the Rule 23 class certification had been made as required by the Third Circuit.

The trial court declined to stay the trial, and the employer filed a writ of mandamus before the Third Circuit.

The employer requested the Appellate Court to direct the trial court not to proceed with the trial until after ruling on Rule 23 class certification and if certification was granted, to delay the trial until after the class members were given an opportunity to opt out. The employer also requested the case be reassigned to a new judge. Finally, the employer sought a stay while awaiting the Appellate Court’s ruling.

The Third Circuit noted that “the present mandamus petition brings into sharp relief some of the potential challenges of trying a case that simultaneously includes both forms of aggregate litigation.”

Upon review, the Third Circuit used the standard framework for a request to stay lower court proceedings pending appeal. 

This framework considers the following factors: (1) the likelihood of obtaining mandamus relief; (2) whether irreparable injury would be suffered by the employer absent a stay; (3) whether the plaintiffs would be substantially injured by a stay; and (4) the public interest.

The Third Circuit granted the stay after finding the first three factors weighed in favor of relief. The fourth factor was not taken into consideration. The Court addressed each of the first three factors in turn.

“To prevail on the merits of a mandamus petition, the petitioner must show that the district court clearly and indisputably erred, and that no other adequate alternative remedy exists.” See In re Howmedica Osteonics Corp., 867 F.3d 390, 401 (3d Cir. 2017).

The bar for prevailing is lower when considering a stay pending resolution of a petition for writ of mandamus. In such instance, the applicant only has to show “a reasonable chance, or probability, of winning” relief to prevail. In re Revel AC, Inc., 802 F.3d 558, 568 (3d Cir. 2015). Thus, the Appellate Court may grant a stay as long as the ultimate likelihood of winning the mandamus is “significantly better than negligible.” Id. at 357.

The Third Circuit found that the employer had “cleared that hurtle” based on the fact that the trial court refused to engage with the employer’s objection to proceeding with the trial prior to resolving whether to certify the Rule 23 class action despite having been instructed to conduct a rigorous analysis of certification on remand and despite that the trial would resolve a fact issue central to all claims.

The Third Circuit reasoned that even if there were not an FLSA claim at hand, a pre-certification approach to trial would be viewed with the utmost skepticism as it goes against the history and text of Rule 23 and Supreme Court and Circuit Court precedent.

In effect, the Third Circuit held, conducting a trial as to the main factual question in the FLSA action would trigger the same concerns as a trial-before-certification approach. As such, the Appellate Court determined that the employer had a strong probability of prevailing on the merits of the mandamus petition.

The Third Circuit stressed that Rule 23 was in fact amended to include a provision requiring certification “[a]s soon as practicable after the commencement of [the] action,” Fed. R. Civ. P. 23 (c)(1) (amended 2003), to avoid the very outcome that would result if the trial court were to move forward with the trial in the FLSA matter prior to certifying the Rule 23 class, i.e., allowing class members to “await developments or even final judgment to determine whether participation would be favorable to their interests.” See Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538, 547 (1974).

The Appellate Court likened the trial court’s attempt to move forward with the FLSA trial, to “foisting trial-before-certification on an unwilling Rule 23(b)(3) defendant,” which the Third Circuit recognized was against the precedent of the Supreme Court of the United States, seven of the federal Circuit Courts of Appeals, and the Third Circuit itself.

The Third Circuit stressed that if the FLSA trial reached a conclusion in favor of the plaintiffs, it would effectively have identified and determined the merits of the class members’ common factual question.

The Appellate Court further stated that allowing FLSA trials in hybrid wage-and-hour lawsuits prior to Rule 23 class certification to become the norm would mean employees would not likely ever opt in to an FLSA action. This would result in a win-win for the employees and would unfairly disadvantage the employer.

The Third Circuit further reasoned that given that the employer had a reasonable probability for success, mandamus was their only avenue to address the error of the trial court. An appeal was unavailable because there was no final ruling under 28 U.S.C. 1291 and the collateral order doctrine did not permit an immediate appeal.

For the reasons discussed above, the Third Circuit concluded the employer would be irreparably damaged by the airing of evidence relating to their liability prior to the certification of the Rule 23 class.

The Appellate Court further reasoned that the MLOs would not be injured because their damages would be held constant during the stay period should they ultimately recover and if their claim were unsuccessful the delay would make no difference.

Finally, the Third Circuit found that a stay did not weigh against the public interest, as the public now benefited from the discussion of the potential difficulties of prosecuting an FLSA opt-in collective action and Rule 23(b)(3) opt-out class action at the same time.

After explaining its decision in granting the stay, the Third Circuit determined the stay was no longer necessary.

The Third Circuit dismissed the request for reassignment of the trial judge as moot, as the trial judge filed a supplemental response joining the petition for the case to be reassigned.  The Third Circuit expressed confidence that the new trial judge who would be reassigned the case would follow the Third Circuit’s prior direction to “conduct a ‘rigorous’ examination of the factual and legal allegations underpinning [the] claims before deciding…class certification.”

As such, the stay was dissolved, and the mandamus petition was dismissed in part as moot and denied in part as unnecessary.

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Jenna Tersteegen is an Associate in Maurice Wutscher's New York City office, practicing in the firm’s Consumer Credit Litigation and Commercial Litigation groups. Prior to joining the firm, Jenna was an associate attorney at a litigation law firm in New York City. Her practice covered New York state labor and employment laws, premises liability and property damage cases. She conducted all pre-trial aspects of litigation, including preparing case strategy and evaluation reports, taking and defending depositions, and drafting dispositive pre- and post-trial motions. She is admitted to practice law in New York, and her Illinois admission on motion is pending.

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