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The Seventh Circuit’s recent decision in Espenscheid v. DirectSat USA, LLC—authored by Judge Posner—is full of good news for employers and other class-action defendants.

The case is a hybrid collective action under the Fair Labor Standards Act (pdf) and opt-out Rule 23(b)(3) class action asserting state-law wage-and-hour claims. The plaintiffs—a group of home satellite-dish installers who were paid by the job rather than by the hour—sued their employer for allegedly failing to ensure that they were paid the federal minimum wage and time-and-a-half for overtime work. The district court initially certified the collective and class actions, but decertified them after seeing the plaintiffs’ trial plan. The Seventh Circuit affirmed.

There’s a lot to like about the  decision:

  • The court holds that the standard for certifying an opt-in collective actions is the same as the standard for certifying an opt-out class action under Rule 23. That’s great news for employers. Other courts have held that the standard for certifying collective actions is more lenient—in our view, more loosey-goosey—than the requirements of Rules 23(a) and (b)(3). See, e.g., O’Brien v. Ed Donnelly Enters., Inc., 575 F.3d 567, 584-85 (6th Cir. 2009). 
  • The Seventh Circuit approved of the district court’s decision requiring the plaintiffs to submit a “specific plan for litigating the case” as it had been initially certified. Such a request is “reasonable,” the court explained, “given the difficulty of trying a class action.”  The court’s approval of this growing trend of requiring plaintiffs to submit detailed trial plans benefits defendants in all types of class actions; such plans often smoke out individualized issues and make clear that the proposed class would be hopelessly unmanageable at trial.
  • Because the trial plan submitted by class counsel confirmed that calculating damages would require individualized inquiries, the Seventh Circuit held that the class was properly decertified. That’s great news: Many courts have disregarded individualized issues as to damages by invoking the mantra that they pose no obstacle to class certification. These courts, of course, virtually never have to try these cases, which almost invariably settle after certification. But the Seventh Circuit recognized that “2341 separate evidentiary hearings” on damages—one for every technician—“might swamp the Western District of Wisconsin with its two district judges.” And although it’s “realistic” to assume that the defendant “would settle” rather than try the class action, “class counsel cannot be permitted to force settlement by refusing to agree to a reasonable method of trial should settlement negotiations fail.”
  • The Seventh Circuit rejected the plaintiffs’ proposal to prove damages by presenting testimony from 42 “representative” class members—a practice permitted by a few other courts (such as the Sixth Circuit in O’Brien). The Seventh Circuit explained that the sample was not randomly selected in a statistically sound way.  And the court added that even if the sample had been random, “this [approach] would not enable the damages of any members of the class other than the 42 to be calculated.” Extrapolating from these class members’ experiences would result in undercompensating some workers and overcompensating others. At bottom, the Seventh Circuit explained, the plaintiffs were “ask[ing] 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.” 
  • Finally, the Seventh Circuit reminded plaintiffs that they must explain why their proposed collective or class action is superior to an enforcement action by the Department of Labor. Defendants in other types of class actions can cite this language when faulting plaintiffs for failing to seek other types of regulatory or administrative relief.

I do have one quibble with the decision. The Seventh Circuit noted in dicta that the class might have been certified had the plaintiffs been seeking declaratory or injunctive relief instead of damages. That doesn’t make sense to me. In explaining the thorny individualized questions that must be answered to determine damages, the Seventh Circuit makes clear that a number of them in fact go to injury. For example, converting an employee’s per-job rate into an hourly wage might demonstrate that he or she is being paid above the federal minimum wage. Some efficient workers might not have worked overtime. And some workers may have underreported their hours not because of any pressure from their employer, but because they wanted to appear especially efficient and thus worthy of promotion. These workers not only have suffered no damages, they are not injured—which negates liability. Individualized issues as to liability should preclude certification regardless of the type of relief the plaintiffs seek.

Nonetheless, Espenscheid is a great win for employers and class-action defendants in general.

A recent decision from the Delaware Supreme Court is a reminder that the members of a mandatory class—one in which the class isn’t guaranteed opt-out rights—sometimes may be given the right to opt out in order to pursue their own individual actions.

The decision, In re Celera Corp. Shareholder Litigation (pdf), addressed a class settlement of claims that the directors of Celera Corp. had breached their fiduciary duties in agreeing to a merger with Quest Diagnostics. The settlement promised “therapeutic benefits” to the class of Celera shareholders, such as additional disclosures and changes to the merger agreement that made it easier for Celera to entertain other offers. But the settlement gave class members no damages, it released all shareholder claims related to the merger, and it barred class members from opting out to pursue individual actions. The chancery court certified the class under its Rule 23(b)(1) (because of the potential for inconsistent adjudications) and Rule 23(b)(2) (because the class sought injunctive relief). The chancery court also overruled the objection to the settlement lodged by Celera’s largest shareholder, BVF Partners, which believed that the transaction undervalued Celera and wanted to pursue an individual claim for damages.

On appeal, the Delaware Supreme Court rejected BVF’s challenge to the standing of the named plaintiff. The court ruled that even though the named plaintiff sold its shares before the consummation of the merger, the plaintiff still was an adequate class representative, albeit “barely,” because it owned the shares when the merger was announced and did not “acquiesce” to the merger. The Delaware Supreme Court also saw no merit in BVF’s argument that the class’s potential damages claims should have precluded any class certification except under Delaware’s Rule 23(b)(3), which guarantees opt-out rights to class members. The court explained that Delaware precedent allows shareholders to bring mandatory class actions under Rules 23(b)(1) and (b)(2) in order to challenge director conduct in carrying out corporate transactions.

BVF had better success with its request to opt out of the certified class. The Delaware Supreme Court concluded that the chancery court should have allowed BVF to opt out. Worried that absent class members “could have their claims released without an opportunity to be heard,” the court explained that the chancery court has discretion to permit class members to opt out of (b)(2) classes. The court noted that such discretionary opt-out rights have been allowed when an objector has a distinct claim or when allowing opt outs would facilitate fair and efficient litigation. The court then explained that the “objective of global peace” shared by the parties to the settlement was “outweighed by due process concerns” arising from BVF’s circumstances. In particular, the named plaintiff was “barely” adequate, the “therapeutic relief” afforded by the class settlement was quickly mooted by consummation of the merger, and BVF was a substantial shareholder with a supportable damages claim. The court therefore concluded that barring BVF from opting out was an abuse of discretion.

The Celera decision promises to become an important consideration in negotiating class settlements of challenges to corporate transactions in Delaware and elsewhere. Defendants can no longer count on obtaining global peace from a non-monetary class settlement. And both sides must now be ready to account for the possibility that objecting shareholders may try to obtain opt-out rights.

The Ninth Circuit’s recent decision in a TCPA case—Meyer v. Portfolio Recovery Associates (pdf)—involves several interesting issues for class-action practitioners even outside the TCPA setting.

First, a bit of background. In Meyer, the plaintiff sued a debt collector under the TCPA, alleging that it used an autodialer to call his cell phone number impermissibly. The plaintiff sought statutory damages and injunctive relief on behalf of a putative class of all California residents whom the defendant had called at cell phone numbers that had not been provided as part of the transaction giving rise to the debt in question. The district court certified the class under Federal Rule of Civil Procedure 23(b)(2) for the limited purpose of entering a preliminary injunction against the challenged conduct. The Ninth Circuit affirmed.

Setting aside the TCPA issues—which will be addressed in a subsequent post—the Ninth Circuit’s decision contains several holdings that should be of interest (and concern) to class-action defendants more broadly:

Continue Reading Ninth Circuit Upholds “Provisional” Class Certification for Entry of a Preliminary Injunction in TCPA Class Action

The Second Circuit’s recent decision in Hecht v. United Collection Bureau, Inc., No. 11-1327 (2d Cir. Aug. 17, 2012), should sound alarm bells for any business that attempts to settle a class action.  The takeaway from the decision is to make sure that  notice of the settlement to absent class members is adequate. Under some circumstances, a single notice in the USA Today won’t cut it. And if it doesn’t, the release in the settlement won’t be worth the paper it’s printed on, and other plaintiffs will be free to bring the exact same class action against you.

Continue Reading Second Circuit: Insufficient Notice of Class Action Settlement Means That Class Members Can Bring Copycat Class Actions