Court Refuses to Approve Collective Action Settlement Without Disclosure of Terms

Posted by Greg Mersol on January 24, 2012

Confidentiality provisions in employment settlements are routine, but they can be problematic in the context of the settlement of a class or collective action. Class action settlements require court approval under Rule 23(e) (if the class is certified) and FLSA settlements require approval from either the United States Department of Labor or a court. See Lynn's Food Stores v. United States, 679 F.2d 1353 (11th Cir. 1982). So, can the parties get that approval without publicly disclosing the terms through a court filing?

In a recent case, Rice v. Lucky Brand Dungarees Stores, Inc., Case No. 11-CV-61923 (Jan. 9, 2012), the parties settled a putative FLSA collective action, but apparently chose not to seek court approval, and simply tendered a stipulation that stated that the case was to be dismissed with prejudice. The court, however, refused to enter the stipulation and directed the parties to file the agreement publicly or to show extraordinary circumstances why the agreement should not be filed. This decision is similar to one reached two years ago by another district court in Florida in Dees v. HydraDry, Inc., Case No. 8:09-CV-1405 (M.D. Fla. Apr. 19, 2000), in which the court rejected such an attempt in a much longer opinion.

One interesting twist in the Rice case is that the parties did not explicitly ask the court to approve the settlement or to issue any class-wide relief, but had only filed the stipulation of the court. Despite the lack of any such request, the court still refused to permit so much as a stipulation for dismissal with prejudice under Rule 41.

Rice was, of course, under the FLSA, but class actions (as opposed to collective actions) are subject to the additional disclosure requirements of Rule 23(e) and the Class Action Fairness Act, 28 U.S.C. section 1715. Thus, the same, and probably higher, obligations apply.

The Bottom Line: Parties should assume that a court will demand the public disclosure of the terms of a either a class or collective action settlement.

Seventh Circuit Applies Good Faith Standard For Removal Under CAFA

Posted by Greg Mersol on May 04, 2011

On April 14, 2011, the Seventh Circuit issued an important decision regarding removal under the Class Action Fairness Act (“CAFA”). Blomberg v. Service Corp. Int’l.pdf, Case No. 11-8009 (7th Cir. Apr. 14, 2011).  The Seventh Circuit held that a party need only provide a good faith estimate, supported by evidence, to satisfy CAFA’s jurisdictional amount, and that a case should not be remanded unless the opponent demonstrates that recovery of that amount is legally impossible.

The plaintiffs in Blomberg sought to assert class action claims against funeral services provider SCI for alleged violations of the Illinois wage and hour laws.  SCI removed the case to the United States District Court for the Northern District of Illinois under CAFA, alleging that the amount in controversy exceeded $5 million as required by 28 U.S.C. section 1332(d)(2).  In support of that allegation, it provided the number of potential class members in Illinois and noted that if each of the plaintiffs worked 552 hours during the limitations period the amount would be satisfied.  It also cited a Virginia case (see below) in which a court found that an even smaller proposed class of SCI employees met the amount in controversy requirement.

The Illinois district court found that SCI had to failed to prove the amount in controversy and remanded the case to state court.  SCI petitioned the Seventh Circuit for appeal.  The Seventh Circuit not only granted the petition, but held that the district court had applied the wrong standard and that the case was properly removed.

The Seventh Circuit noted that a plaintiff controls the allegations of his or her own complaint, and thus it may be more difficult for the defendant to establish the requisite amount in controversy.  The defendant therefore has a lesser burden to establish that amount under CAFA.  Once a defendant “plausibly” explains how the amount in controversy exceeds $5 million, a party opposing removal has the burden to prove that “it is legally impossible for the plaintiff to recover that much.” 

While the court quibbled with some of SCI’s methodology, it ultimately found that its showing was plausible and that the plaintiffs had not shown how it was “legally impossible for them to recover that amount.”  Because they had made no such showing, it found that removal was proper.  The Seventh Circuit’s decision reflects one view of the applicable standard for removal under CAFA, but also highlights a split among courts and the circuits over the correct standard.  Compare, e.g., Smith v. Nationwide Property & Casualty Ins. Co., 505 F.3d 401, 406 (6th Cir. 2007) (applying similar standard), with Amoche v. Guarantee Trust Life Ins. Co., 556 F.3d 41, 50 (1st Cir. 2009) (applying reasonable probability test, but noting that test is similar to preponderance), with Frederico v. Home Depot, 507 F.3d 188, 196 (3d Cir. 2007) (applying a “legal certainty” test).

On a side note, SCI also had success in a Virginia case the same week.  In Walker v. Service Corp. Int'l.pdf, Case No. 4:10-CV-00048 (W.D. Va., Apr. 12, 2011), a Virginia district court judge dismissed a case against SCI alleging “off-the-clock” time under Virginia law.  It found that the plaintiffs in that case had specifically denied relying on the FLSA, but also found that there was no Virginia claim for overtime pay absent an agreement to pay more than the FLSA provided.  It also found that any such claim would be duplicative of an FLSA collective action already pending against the company in Arizona.  Thus, it dismissed the case.

The Bottom Line:  Courts apply different standards with respect to establishing the amount in controversy under CAFA.  The Seventh Circuit now applies a standard that is more realistic in terms of the parties’ respective  burdens given a plaintiffs’ control over the allegations of the complaint.