DIFFERENT NAMED PLAINTIFFS IS NOT AN IMPEDIMENT TO THE APPLICATION OF THE “FIRST-FILED” RULE TO FLSA COLLECTIVE ACTIONS
By: Jason E. Reisman & Betina Miranda, Obermayer Rebmann Maxwell & Hippel LLP (Philadelphia, PA)
A recent case out of the New Jersey federal district court clarifies the application of the “first-filed” rule to collective actions brought under the Fair Labor Standards Act (“FLSA”). According to the June 7, 2010, opinion in Abushalieh v. American Eagle Express, Inc., No. 1:10-cv-00211, the “first-filed” rule is indeed applicable to two consecutively filed proposed FLSA collective actions, where the named plaintiffs are different but both sets of plaintiffs seek to represent the same class. The remedy in such a situation is the transfer of the latter-filed case to the district where the first-filed case is pending.
The “First-Filed” Rule
The “first-filed” rule directs that, in cases of federal concurrent jurisdiction, the court which first has possession of the subject matter must decide it, for reasons of judicial economy and sound judicial administration. To be applicable, the latter-filed case must be truly duplicative of the first-filed case, “on all fours” in material aspects. The issues do not have to be identical but must be so similar that a determination in one case would leave little or nothing to be resolved in the other.
The Pre-Abushalieh Cases
Prior to the filing of Abushalieh on January 14, 2010, two other similar cases were filed against American Eagle Express, Inc. (“AEX”). All three cases allege that AEX improperly classifies delivery drivers as independent contractors when they are actually employees. The first case, Sherman v. AEX, was filed February 10, 2009, in the U.S. District Court for the Eastern District of Pennsylvania, as a putative class action under Federal Rule of Civil Procedure (“FRCP”) 23. The case was brought exclusively pursuant to Pennsylvania wage and hour laws, and was filed on behalf of all AEX delivery drivers in Pennsylvania between February 10, 2006, and the present, who were designated by AEX as independent contractors.
The second case, Spellman v. AEX, was filed in the U.S. District Court for the District of Columbia, on September 1, 2009, under the FLSA and Maryland and District of Columbia wage and hour laws. The Spellman plaintiffs seek to represent all AEX delivery drivers who drove delivery vehicles of less than 10,001 pounds gross vehicle weight for AEX. The Spellman plaintiffs also ask that two subclasses be designated for their Maryland and District of Columbia claims. The Spellman case was later transferred on April 9, 2010, to the Eastern District of Pennsylvania at the plaintiffs’ request, principally because of the pending Sherman matter, although it has yet to be consolidated with that matter.
Is Abushalieh on “All Fours” with Sherman and Spellman?
The Abushalieh plaintiffs bring claims solely under the FLSA as a collective action on behalf of all AEX delivery drivers who, between January 15, 2007, and the present, drove delivery vehicles with a gross vehicle weight of 10,000 pounds or less in New Jersey, Pennsylvania, Maryland, and Delaware. AEX filed a motion to dismiss on the basis of the “first-filed” rule citing the Spellman action. The Abushalieh plaintiffs opposed the motion, arguing that (1) the rule is inapplicable because the named plaintiffs were different; (2) the rule should not apply because of concerns about coordinating opt-in FLSA collective actions with opt-out state class actions under FRCP 23; (3) if the rule applies, then Sherman is the first-filed case; and (4) if the rule applies, transfer and not dismissal is the appropriate remedy.
After considering the parties’ arguments, the court issued a ruling which essentially split the baby. First, the court found that Spellman and Abushalieh brought virtually identical FLSA claims seeking the same relief. While Spellman additionally sought relief under state law, its FLSA claim fully encompassed the entire Abushalieh matter. However, Sherman did not encompass the Abushalieh matter, as Sherman brought only state law claims while Abushalieh only brought federal claims. The court found that these facts precluded Sherman from being considered the “first-filed” case.
Second, the Abushalieh court found that the plaintiffs’ concerns about coordinating FLSA collective actions with state law class actions to be inconsequential. While the combination of an opt-out state law class action and an opt-in FLSA collective action could have the effect of nullifying the opt-in requirement, the court noted that there would be adequate remedies for such a conflict, including the dismissal or severing of the state law class action claim, or creating the state law class to include only those who opt in.
Third, and of particular interest, the court found that the parties in Spellman and Abushalieh were sufficiently similar for purposes of the “first-filed” rule despite the different named plaintiffs. The Third Circuit has yet to address the situation where, in two proposed collective actions, the named plaintiffs are different but seek to represent the same class of individuals against the same defendant. So, the Abushalieh court looked to a 2009 decision in the District of New Jersey, Alvarez v. Gold Belt, LLC, No. 08-4871, 2009 WL 1473933. The Alvarez court, while technically not applying the “first-filed” rule because both cases at issue were pending before the same court, drew upon the principles of the rule, especially the importance of judicial economy and consistent judgments. Applying these principles, the Alvarez court stayed proceedings on the case at bar until the judge in the other case ruled on the earlier class certification request.
Relying on the principles of Alvarez, the Abushalieh court ruled that when different named plaintiffs seek to represent the same class against the same defendant with virtually identical FLSA claims, the “first-filed” rules applies. The court further held that the appropriate remedy is transfer of the latter-filed case to the district where the first-filed case is pending, pursuant to the forum non conveniens requirements of 29 U.S.C. 1404(a). Thus, the Abushalieh matter was ordered transferred to the U.S. District Court for the Eastern District of Pennsylvania, where it could be consolidated with the pending Spellman case.
 The colorful phrase “on all fours with” has been explained by the story, perhaps apocryphal, of a case involving a dispute over a living cow. One of the attorneys, in making his argument, cited a prior decision involving a dead cow. Opposing counsel cited a different decision that involved a living cow. The judge sided with opposing counsel, stating that he had better authority because it was “on all fours” (i.e., alive).
Department of Labor Argues that FLSA Collective Actions and State-Law Class Actions May Be Asserted Simultaneously Against the Same Employer
In a recent amicus brief to the Third Circuit, the United States Department of Labor has formally taken the position that state-law class actions under Federal Rule of Civil Procedure 23 are compatible with collective actions under § 16(b) of the Fair Labor Standards Act (“FLSA”), such that the two claims may be brought against the same employer in the same federal lawsuit. While this position is at odds with a majority of district courts within the Third Circuit – and arguably even with the Third Circuit opinion of De Asencio v. Tyson Foods, Inc., 342 F.3d 301 (3d Cir. 2003) – employers within the jurisdiction are anxiously awaiting the Third Circuit’s ruling.
The case before the Court of Appeals is Parker v. NutriSystem Inc., No. 09-3545. The plaintiff filed suit in the Eastern District of Pennsylvania, bringing an FLSA collective action and a Rule 23 class action under the Pennsylvania Minimum Wage Act (“PMWA”). The plaintiff alleged that he and other call center employees were denied overtime pay for weeks in which they worked more than 40 hours. Call center employees were paid the larger of their hourly pay or their flat-rate payments per sale of the employer’s weight-loss program.
The district court granted the employer’s motion to dismiss the PMWA class action. The court declined to exercise supplemental jurisdiction over the state-law claim, finding that “the opt-out mechanism of a Rule 23 class action is ‘inherently incompatible with the opt-in scheme specified by Congress with respect to FLSA collective actions.’” In its perfunctory opinion, the district court expressly adopted the reasoning of Woodard v. FedEx Freight East., Inc., 2008 U.S. Dist. LEXIS 11919 (M.D. Pa. Feb. 19, 2008), and Ramsey v. Ryan Beck & Co., Inc., 2007 U.S. Dist. LEXIS 56129, *6 (E.D. Pa. Aug. 2, 2007). The courts in those cases dismissed Rule 23 class actions filed concurrently with FLSA collective actions because, in their view, including both an “opt-in” and an “opt-out” claim in a single lawsuit would permit the plaintiff to circumvent the FLSA’s opt-in requirement and bring unnamed parties into federal court.
The district court also granted summary judgment in favor of the employer on the FLSA claim. The court found that the call center employees were paid on a commission basis and were therefore exempt from overtime requirements under the FLSA’s § 7(i) retail commission exemption.
On appeal, in its brief, the DOL argued that the district court improperly declined to exercise subject matter jurisdiction over the PMWA claim. It cited 28 U.S.C. § 1367’s mandate that a court has supplemental jurisdiction over all state-law claims that are “so related” to the federal claims “that they form part of the same case or controversy.” The DOL stressed that the FLSA and the PMWA are parallel laws and that an FLSA claim and a PMWA claim share a “common nucleus of operative fact,” such that a district court should exercise supplemental jurisdiction over a the PMWA claim.
Next, the DOL argued that the FLSA is not the exclusive remedy in the area of wage payment, that states may enact wage laws that are broader and more protective than the FLSA, and that the FLSA is not intended to occupy the entire field of wage payment.
With respect to the “inherent incompatibility” of the opt-in and opt-out mechanisms, the DOL contended that nothing in either the text or the legislative history of § 16(b) of the FLSA or the Portal-to-Portal Act evidenced a congressional intent to prohibit simultaneous state-law class actions. According to the DOL’s reasoning, the FLSA’s “opt-in” requirement applies only to FLSA claims and not to state-law class actions, and accordingly, state-law, “opt-out” claims may be brought irrespective of the FLSA. The DOL stated that Congress’s enactment of the FLSA “opt-in” provision was not “a choice against, or a relegation of, the opt-out process of Rule 23.” The DOL essentially argued that, absent any indication that Congress intended for an FLSA collective action to preclude a Rule 23 class action, the state-law class action is permissible in the same suit. Supporting the DOL’s argument was the fact that Rule 23’s “opt-out” provision was enacted in 1966 – almost 20 years after the passage of the Portal-to-Portal Act, which enacted the “opt-in” requirement for FLSA collective actions.
The DOL then distinguished De Asencio, in which the Third Circuit found that the district court had abused its discretion in exercising supplemental jurisdiction over a Rule 23 class action under the Pennsylvania Wage Payment and Collection Law (“WPCL”). The DOL argued that the Third Circuit’s decision was based primarily on the fact that the WPCL claim predominated over the FLSA claim due to its novel questions of state law and standards of proof different from those under the FLSA. It pointed out that, unlike in De Asencio, a PWMA claim and an FLSA claim are identical.
It should be noted that De Asencio contains language that may prove to be problematic for the DOL’s position:
Another countervailing interest in relegating the WPCL claims here to state court is Congress’s express preference for opt-in actions for the federal cause of action. Congress’s interest in these matters is manifest. For policy reasons articulated in the legislative history, Congress chose to limit the scope of representative actions for overtime pay and minimum wage violations.
De Asencio, 342 F.3d at 310-11. The DOL attempted to marginalize this language by stating in a footnote that “there is no basis for concluding that Congress made that ‘choice’ for anything other than collective actions.”
Finally, the DOL cited cases both within and outside of the Third Circuit that disagreed with the lower court’s conclusion and found that an FLSA collective action and a Rule 23 class action may proceed simultaneously.
On the merits of the FLSA claim, the DOL asserted that the retail commission exemption did not apply to the employees in question. According to the DOL’s interpretation, flat fees paid without regard to the value of the service performed or the amount charged to the customer – which described the fees paid to the call center employees – do not constitute commissions for the purposes of the
§ 7(i) retail commission exemption.
Parker has the potential to be a landmark case. If the Third Circuit adopts the DOL’s position, wage and hour plaintiffs within the Circuit’s jurisdiction will be permitted to bring FLSA collective actions and Rule 23 class actions simultaneously against the same employer for the same alleged violation.
By Jason E. Reisman and Seth Spiegal, Obermayer Rebmann Maxwell & Hippel LLP
To follow up on Dennis’ posting, I wanted to mention another aspect of this “trainee” concept. It is critically important to remember that the nature of the U.S. Department of Labor’s (“DOL”) view on this subject often derives from the view that the employer providing the training is doing a general service to the community, for example, by increasing the size of the qualified pool of potential new hires for businesses that require such skills. In following that theme, an employer must be alert to portions of a training program that include instruction or education on that particular employer’s policies, procedures and/or practices. Such information, in the DOL’s view, runs afoul of factor 2 and/or 4 of the Walling test.
For instance, a few years ago, a transportation company that I worked with began providing a training program to assist potential driver applicants to learn to drive the relevant vehicles, which ultimately required the applicant to acquire a commercial driver’s license (“CDL”). Not only did the company provide classroom training but it provided road testing to assist the enrollee in obtaining a CDL, and even allowed an enrollee who completed the program to borrow a vehicle for taking the state’s CDL driving test. For the DOL, even though the overwhelming majority of the training focused on driving skills and related safety procedures (which were fungible and usable by enrollees within the transportation industry), the problem existed in certain small portions of the nearly 35 hours of training that the company provided. Specifically, the DOL objected to the company’s review during the training of its own defensive driving, accident reporting and drug testing policies as well as a review of the company’s employee handbook materials. In the end, we were able to work with the DOL to eliminate certain portions of the training so that it was comfortable with the company’s continued provision of the program without FLSA implications—but the DOL did require minimal back pay payments to be made to numerous of the recent enrollees who successfully completed the course.
So, as Dennis said, “proceed with caution”—pay close attention to all aspects of your training or unpaid intern program before you implement it.–By Jason E. Reisman