An improper class still isn’t a class even if you settle

Here’s something you don’t see every day. A district court has rejected the settlement of a proposed class and collective action – not due to the usual reasons such as excessive attorney fees or other terms, but because the plaintiffs have not shown that there is any class in the first place.

Fraticelli v. MSG Holdings, L.P., Case No. 13 Civ. 6518 (S.D.N.Y. July 2, 2018), involved claims by unpaid interns working at Madison Square Garden since 2007. They contended that they were actually employees and should have received the minimum wage and overtime for the time that they worked. They filed their claims in 2013, when many such suits were being filed, but the district court denied conditional certification in 2014. We blogged about that initial decision here. The court’s decision was rooted in common sense – the test under the FLSA involves multiple factors, and the specific work and circumstances for each intern were likely to differ. The court concluded that conditional certification was pointless because even under the relaxed standard for conditional certification, there was no basis to conclude that there was any viable class. The parties then reached a settlement of the matter on a classwide basis.

Time was not kind to that settlement. The court denied without prejudice the plaintiffs’ motion to approve the settlement, in part because the plaintiffs had not demonstrated why there was a class – a prerequisite to a class action settlement − and directed them to supplement their submission to cure this basic defect. In the meantime, the Second Circuit decided Glatt v. Fox Searchlight Pictures, Inc., 791 F.3d 376 (2d Cir. 2015), and Wang v. Hearst Corp., 617 F. App’x 35 (2d Cir. 2017), in which the court adopted a different test for interns but one that required a “highly individualized inquiry.” Glatt, 791 F.3d at 386; see also Wang, 617 F. App’x at 37 (the need for “individualized inquiry of each intern’s situation” renders class action treatment inapplicable). We blogged about the Wang case here. The Second Circuit even amended its decision in Glatt in 2016 to spell out that the question of whether an intern is an employee is “a highly context-specific inquiry.” Glatt (Amended Opinion), 811 F.3d 528, 539 (2d Cir. 2016). Put another way, while the settlement was pending, the Second Circuit adopted an even more difficult standard for the plaintiffs.

Amid this backdrop, plaintiffs filed a supplemental submission on Oct. 13, 2017. The record does not state why there was such a delay between the court’s initial rejection and the supplementation. In any case, the district court found essentially that nothing had changed, and, if anything, the conclusion that there was no class was even stronger. The evidentiary submissions on conditional certification still showed that there were significant differences among the experiences of individual interns. The law increasingly required an individualized, fact-specific inquiry. The court also rejected arguments based on the relatively lower showing for conditional certification (which had been rejected earlier in any event). Citing the U.S. Supreme Court’s decision in Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997), the court found that it had an arguably higher duty to determine whether a class existed, and certainly not a diluted one. As the plaintiffs still had made no such showing, the court concluded that it could not certify a class, even for settlement purposes, and denied the motion.

The decision in Fraticelli demonstrates one pitfall in the somewhat cynical process by which wage and hour class and collective actions are often litigated, one in which the goal often is the acquisition of leverage in settlement discussions rather than any real look at the merits. If the plaintiffs cannot demonstrate why there is a class in the first place, any resulting settlement may fail as well.

The bottom line:

Plaintiffs seeking to settle a case on a classwide basis must demonstrate that there is a class, a task made harder if they have already lost a motion for certification or conditional certification.