E.D.Cal.: Settlement Of Rule 23 And 216(b) Class Hybrid Action Requires Simultaneous Notice; Opt-out Notice Alone Insufficient To Bind Class On FLSA Claims

Wright v. Linkus Enterprises, Inc.

Plaintiffs filed this action against Defendant for violation of various state and federal labor laws. Before the Court was Plaintiffs’ Unopposed Motion for Preliminary Approval of Settlement of their hybrid action, which consisted of both a Federal Rule of Civil Procedure 23(b)(3) class action and a Federal Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 216(b), collective action. Though the Motion was essentially unopposed, the parties did disagree as to one issue pertaining to release of claims by currently absent parties, regarding notice required to the class members (Defendant proposed an opt-out Rule 23 notice alone). The Court resolved that dispute by ordering that the parties’ existing agreement and forms be modified to provide both “opt-out” procedures as allowed under Rule 23 and “opt-in” procedures as required by the FLSA.

Explaining that opt-in notice as well as opt-out notice must be provided to class members in such a hybrid action, the Court stated, “According to Defendants, the Rule 23 opt-out procedures, under which potential plaintiffs are bound by the terms of the settlement unless they affirmatively opt out, should apply to both the state law claims and to those claims arising under the FLSA. Plaintiffs disagree arguing that, while Rule 23 applies to their state law claims, the FLSA requires potential plaintiffs to opt-in to this action in order to release any claims they may have under the FLSA. The Court agrees with Plaintiffs.

In a collective action brought under the FLSA, “[n]o employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.”29 U.S.C. § 216(b). Congress enacted this provision for the purpose of “limiting private FLSA plaintiffs to employees who asserted claims in their own right and freeing employers of the burden of representative actions.” Hoffman-La Roche Inc. v. Sperling, 493 U.S. 165, 173 (1989).

Conversely, a class action brought pursuant to Rule 23(b)(3) mandates notice informing potential plaintiffs that they can avoid being bound by the terms of a settlement or judgment if they so inform the court. SeeFed.R.Civ.P. 23(c)(2)(B)(v). Thus, a plaintiff that does not affirmatively “opt-out” from the class may be bound by the disposition of the case, regardless of whether he received actual notice. Amchem Products, Inc. v. Windsor, 521 U.S. 591, 614-15 (1997).

In Kakani v. Oracle Corp., the Northern District examined the relationship between the two regimes and held that the use of “opt-out” notice would violate the FLSA.2007 WL 1793774, at *7 (N.D. Cal. June 19, 2007). That court stated that it would have been “unconscionable to try to take away the FLSA rights of all workers, whether or not they choose to join in affirmatively.”Id. (emphasis in original).

Defendants’ authority to the contrary is inapposite. First, Defendants cite Hoffman-La Roche Inc. for the proposition that district courts possess discretion over the procedural methods used to join multiple parties in a single case. However, Defendants interpret Hoffman-La Roche too broadly. That case merely established that district courts may authorize notification of potential plaintiffs regarding the opportunity to “opt-in” to a collective action. 493 U.S. at 169. Hoffman La Roche does not stand for the proposition that this Court may substitute Rule 23 “opt-out” notice for the “opt-in” notice expressly required by 29 U.S.C. § 216(b).

Defendants also cite two district court opinions, one in which the court stated without analysis that “opt-out” procedures would be used to settle both FLSA and state law claims, and one in which the federal court simply refused to enjoin a state court from releasing FLSA claims as part of a settlement that utilized “opt-out” notice. Frank v. Eastman Kodak Co., 228 F.R.D. 174, 179 (W.D.N.Y.2005); Dibel v. Jenny Craig, Inc., 2007 WL 2381237, at * 1 (S.D. Cal Aug. 10, 2007). This Court finds neither of these cases persuasive and now holds that “opt-in” procedures must be provided for the release of the instant FLSA claims.

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