Seventh Circuit Upholds Decertification of Wage Case Where Individual Damages Hearings Would Be Required

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Last month, I expressed concern that a Seventh Circuit decision authored by Judge Posner in a consumer class action emphasized efficiency over fairness in deciding whether a class should be certified.  What I found especially troubling was the suggestion, not unique to the Seventh Circuit, that the availability of alternative means to determine individual damages if class-wide liability were established could be sufficient to overcome objections to commonality, predominance and manageability.  Such reasoning almost always assumes that defendants, once found liable, will and should abandon their defenses to individual damages claims, or waive their procedural rights in advancing them.

Last week, Judge Posner authored a decision in a wage and hour class action that suggests a more balanced approach.  In Download Espenscheid v DirectSat USA LLC, the court affirmed the decertification of a hybrid FLSA collective action and state wage law class action, largely because plaintiffs’ counsel failed to come up with a viable plan for trying class members’ claims for damages.  The case was brought on behalf of three technicians who alleged that the defendant’s managers “compelled the technicians to do work for which they were not compensated at all, and also to work more than 40 hours a week without being paid overtime for the additional hours,” claims that are typical of many wage and hour cases.  Although the district judge originally certified the action, she later decertified “when it became apparent that the trial plan submitted by the plaintiffs was infeasible.”

In upholding the decertification order, Judge Posner first compared FLSA opt-in class actions with Rule 23 opt-out class actions, and concluded that the standards for certification had become, for all practical purposes, the same:

[D]espite the difference between a collective action and a class action and the absence from the collective-action section of the Fair Labor Standards Act of the kind of detailed procedural provisions found in Rule 23, . . . there isn’t a good reason to have different standards for the certification of the two different types of action, and the case law has largely merged the standards, though with some terminological differences. . . . Simplification is desirable in law, especially in the present context, because joining a collective action and a class action or actions in one suit, as in this case, is both common and, we have held, permissible.

He concluded that it was therefore appropriate, “with no distortion of our analysis” to treat the FLSA and Rule 23 lawsuits “as if it were a single class action.”

With that as prelude, the court then held that the lack of a workable trial plan to determine damages for the 2,341 class members precluded certification.  Observing that “[t]here would have been no problem had the plaintiffs been seeking just injunctive or declaratory relief,” Judge Posner concluded that “to determine damages would, it turns out, require 2341 separate evidentiary hearings, which might swamp” the district court.  This was not a case, he explained, where damages could be determined in a mechanical, formulaic fashion.  Rather, variances in the hours actually worked by the class members and in their record-keeping practices required individual scrutiny of each of their damages claims.  And while plaintiffs’ counsel proposed to present testimony at trial from 42 “representative” class members, counsel did not explain how the 42 were selected or what made them representative.  Even if they were representative, the court held, the experiences of the class members were not uniform, and it would be improper to extrapolate damages for all 2341 from the experiences of 42.

After further reviewing the variations among class members’ claims, Judge Posner explained that “2341 separate hearings loomed even if the district judge bifurcated the proceedings,” although he also suggested that “once liability is established damages claims can usually be settled with the aid of a special master, and trials thus avoided.”  He faulted plaintiffs’ counsel for failing to propose a specific enough plan to determine each class member’s damages, despite the district court’s request that counsel do so:

They must think that like most class action suits this one would not be tried — that if we ordered a class or classes certified, DirectSat would settle.  That may be a realistic conjecture, but class counsel cannot be permitted to force settlement by refusing to agree to a reasonable method of trial should settlement negotiations fail.  Essentially, they asked the district judge to embark on a shapeless, free-wheeling trial that would combine liability and damages and would be virtually evidence-free so far as damages were concerned.

Judge Posner observed that each class member’s damages would be too small to justify individual lawsuits, and stated that courts in such cases “must carefully explore the possible ways of overcoming problems in calculating individual damages,” but he also recognized that in some cases “there may be no way if for example there are millions of class members each harmed to a different extent (and many not harmed at all),” citing the First Circuit’s decision in In re New Motor Vehicles Canadian Export Antitrust Litigation.  This was not such an extreme case, he said, but “if class counsel is incapable of proposing a feasible litigation plan though asked to do so, the judge’s duty is at an end.”

Finally, the court concluded that class counsel had overlooked a promising alternative to class action treatment,” namely a complaint to the Department of Labor, and cited reports of DOL’s success in recovering back wages for alleged FLSA violations.

Written by former litigation partner, Donald R. Frederico.