Category Archives: Class Certification

W.D.N.Y.: Common Law Claims Not Preempted To the Extent They Provide a Remedy Not Available Under the FLSA

Gordon v. Kaleida Health

In an unusual procedural posture, this case was before the court on plaintiffs’ motion to remand their state common law claims, based on lack of subject matter jurisdiction.  The court held that it had subject matter jurisdiction however, because of FLSA preemption considerations.  As discussed here, the court held that common law claims seeking to recover straight-time compensation otherwise not covered under the FLSA are not preempted by the FLSA.

Discussing the issue the court reasoned:

“In many district court cases where this issue has arisen, the plaintiffs’ common law claims were brought in conjunction with FLSA claims, based on the same facts, and seeking the same relief. In such cases, most courts have had no trouble dismissing the common law claims as preempted to the extent recovery is available under the FLSA, even where the plaintiff also brought wage claims under a parallel state statute. See, e.g., Guensel v. Mount Olive Bd. of Educ., Civ. No. 10–4452, 2011 U.S. Dist. LEXIS 132102, at *19, 2011 WL 5599717 (D.N.J. Nov. 16, 2011) (common law claims that are “directly covered” by FLSA must be brought under the FLSA); DeMarco v. Northwestern Mem. Healthcare, Civ. No. 10–C–397, 2011 U.S. Dist. LEXIS 88541, at *17–18, 2011 WL 3510905 (N.D.Ill. Aug. 10, 2011) (unjust enrichment and other state common law claims seeking relief available under the FLSA are preempted); Bouthner v. Cleveland Constr., Inc., Civ. No. RDB–11–244, 2011 U.S. Dist. LEXIS 79316, at *21–22, 2011 WL 2976868 (D.Md. July 21, 2011) (although common law claim made no reference to FLSA, it was preempted where claim sought wages mandated by FLSA).

Two courts in this Circuit have expressly concluded that common law claims are preempted to the extent they seek recovery available under the FLSA, but are not preempted to the extent that state law provides a remedy not available under federal law. DeSilva v. N. Shore–Long Island Jewish Health Sys., 770 F.Supp.2d 497, 532–33 (E.D.N.Y.2011) (finding common law claims preempted by FLSA to extent they sought overtime wages, but not preempted to extent they sought straight-time pay not available under the FLSA); Barrus v. Dick’s Sporting Goods, Inc., 732 F.Supp.2d 243, 263 (W.D.N.Y.2010)  (dismissing common law claims seeking unpaid overtime as preempted by FLSA, but allowing claim for unpaid straight time wages to go forward). Other district courts have held likewise. See, e .g., Monahan v. Smyth Auto., Inc., No. 10–CV–00048, 2011 Dist. LEXIS 9877, at *9–11, 2011 WL 379129 (S.D. Oh Feb. 2, 2011) (unjust enrichment claim not preempted where it was based on alleged failure to pay the state’s minimum wage, which was higher than FLSA minimum wage rate); Mickle v. Wellman Prods. LLC, No. 08–CV–0297, 2008 U.S. Dist. LEXIS 63697, at *10–11, 2008 WL 3925266 (N.D.Okla.2008) (while state statute created a distinct cause of action for overtime compensation, the plaintiffs’ common law claim seeking such relief was duplicative of remedies provided by the FLSA and was preempted).

The law on this issue is by no means settled—some courts have declined to find common law claims preempted where a state’s statute incorporates the FLSA’s minimum wage and/or overtime provisions, and others have dismissed entirely common law claims for which the FLSA provides only partial relief. However, I find the foregoing cases from within this Circuit persuasive. As the DiSilva court noted, the FLSA’s savings clause expressly provides that wage and hour actions may be brought under state wage statutes, “it says nothing about a party’s ability to pursue general common law claims that have no specific relevance to the labor law context.” 2011 U.S. Dist. LEXIS 27138, at *93 (emphasis in original).

Here, Plaintiffs common law claims are not brought in conjunction with any claim for relief under the FLSA or the NYLL. They refer generally to statutory law only as the basis for calculating damages. This vague reference to “state law” is not enough to draw purely common law claims into the ambit of the FLSA’s savings clause. Accordingly, to the extent Plaintiffs are seeking unpaid overtime wages that are available under the FLSA, their common law claims are preempted, and to the extent they are seeking straight-time wages for which no federal relief is available, they are not.”

Click Gordon v. Kaleida Health to read the entire Decision and Order.

Leave a comment

Filed under Class Certification, State Law Claims

W.D.Pa.: Following Denial of Class Cert as Incompatible With 216(b) Collective Action, Plaintiffs’ Motion to Dismiss State Law Claims to Re-File in State Court Granted

Bell v. Citizens Financial Group, Inc.

Although all circuit courts that have taken up the issue have held that so-called hybrid wage and hour cases- comprised of both opt-in collective actions (FLSA) and opt-out class action (state wage and hour law)- are permissible, some courts within the Third Circuit continue to hold otherwise.  As a result, not surprisingly, defendant-employers in such cases continue fighting the class action components of such cases on “inherent incompatibility” grounds.  Such was the case here, where the court had previously conditionally certified the FLSA claims, but denied plaintiffs related motion for class certification of Pennsylvania Minimum Wage Act (“PMWA”) claims on compatibility grounds.  However, in what may become a frequently cited case going forward, the plaintiffs took the logical next step and asked the court to dismiss the PMWA claims so they could re-file them in state court alone, where there would be no issue of compatibility.  Not surprisingly, the defendants then threw up their arms, essentially arguing that the plaintiffs should not be able to bring their class claims in federal court and therefore not be able to proceed as a class in any venue.  The court rejected the defendants argument, permitting the voluntary dismissal of the state law claims to be pursued separately in state court.

After reviewing the applicable standards under Rule 41, the court granted plaintiffs’ motion for voluntary dismissal of the PMWA claims.  The court reasoned:

“Here, defendants have already filed an answer and do not stipulate to the dismissal. Therefore, the court must weigh the equities and decide whether to enter an order of dismissal. Defendants do not assert, and the court cannot ascertain, that they would suffer any plain legal prejudice as a result of dismissal of Watson’s claims. Watson’s intent to re-file a PMWA claim in state court is not plain prejudice. Pouls, 1993 WL 308645, at *1.

Upon weighing the factors set forth in Pouls, we conclude that it is appropriate to grant Watson’s motion to voluntarily dismiss her case. Defendants are not prejudiced by their efforts and expenses in this litigation, because other opt-in plaintiffs remain and the instant suit will continue. Defendants have failed to identify any efforts or expenses unique to Watson. Similarly, the progression of the litigation and Watson’s diligence in moving for dismissal are not determinative factors, due to the ongoing nature of the collective action suit. Consideration of the final factor, the duplicative or excessive expense of subsequent litigation, yields some possibility of prejudice to defendants. If Watson does file a PMWA case in state court and if defendants successfully remove it to federal court, defendants might incur some duplicative expenses in future federal court litigation on issues of claim incompatibility. However, at this time, such expenses are highly speculative. Therefore, we do not find plain prejudice to defendants based on duplicative expenses.

Accordingly, because there is no plain legal prejudice and because the equities weigh in favor of dismissal, we will grant plaintiff Watson’s motion to dismiss her claims without prejudice to her right to refile these claims in state court. An appropriate order follows.”

With the issue of permissibility of so-called hybrids up at the Third Circuit right now it will be interesting to see if this decision gains legs in its trial courts.  For now however it is safe to say that defendants in so-called hybrid cases should be careful what they wish for in seeking dismissal of state classes, because two is not always better than one.

Click Bell v. Citizens Financial Group, Inc. to read the entire Memorandum and Order.

Leave a comment

Filed under Class Certification, Collective Actions, Hybrid

S.D.Cal.: Although Arbitration Agreement With Class Waiver Enforceable, Confidentiality Provision Stricken as Unconscionable Because Overbroad

Grabowski v. Robinson

This case was before the court on defendant’s motion to compel arbitration on an individual (rather than class) basis.  Although the court noted that plaintiffs were required to sign the arbitration agreement contained in their compensation agreements, under threat of forfeiture of commissions, the court held that did not make the agreement unenforceable as entered into under duress.  The court also, in large part, dismissed other arguments regarding the substantive and procedural unconscionability of the agreement.  However, as discussed here, the court held that the confidentiality provision which barred any discussion of the litigation without the other party’s consent to be far too broad.

Discussing the confidentiality provision the court stated:

“Plaintiff contends: ‘[T]he Defendant’s rules impose confidentiality which unfairly favors Defendant. While arbitration normally is not open to the public, the Defendant’s rules go much further. Defendant’s rules require that the record of the proceedings be confidential under threat of a sanction order by the arbitrator.’

The Employment Dispute Mediation/Arbitration Procedure contains a provision entitled, “Confidentiality,” which states:

All aspects of the arbitration, including without limitation, the record of the proceeding, are confidential and shall not be open to the public, except (a) to the extent both Parties agree otherwise in writing, (b) as may be appropriate in any subsequent proceedings by the Parties, or (c) as may otherwise be appropriate in response to a governmental agency or legal process, provided that the Party upon whom such process is served shall give immediate notice of such process to the other Party and afford the other Party an appropriate opportunity to object to such process.

At the request of a Party or upon his or her initiative, the Arbitrator shall issue protective orders appropriate to the circumstances and shall enforce the confidentiality of the arbitration as set forth in this article.

In Davis, the Court of Appeals for the Ninth Circuit stated that, under California law, “[c]onfidentiality by itself is not substantively unconscionable,” but the employer’s “confidentiality clause … is written too broadly” and “unconscionably favors [the employer],” when the clause at issue “would prevent an employee from contacting other employees to assist in litigating (or arbitrating) an employee’s case.” Davis, 485 F.3d at 1078–79 (“The clause precludes even mention to anyone ‘not directly involved in the mediation or arbitration’ of ‘the content of the pleadings, papers, orders, hearings, trials, or awards in the arbitration’ or even ‘the existence of a controversy and the fact that there is a mediation or an arbitration proceeding.’ ”). In this case, the confidentiality provision in the Employment Dispute Mediation/Arbitration Procedure is broader than what the court in Davis indicated would be conscionable. Cf. id. at 1079 (noting that “[t]he parties to any particular arbitration, especially in an employment dispute, can always agree to limit availability of sensitive employee information (e.g., social security numbers or other personal identifier information) or other issue-specific matters, if necessary”).

The Court finds that the confidentiality provision in the arbitration agreement is substantively unconscionable under California law.”

While courts- seemingly bound by a recent slew of employer/arbitration-friendly decisions from the Supreme Court- continue to compel arbitration and enforce class and collective action provisions contained in arbitration agreements, this decision seems somewhat in line with the remedial nature of the FLSA and related state wage and hour laws.  One way employees and their counsel can try to even the playing field might be to seek court-approved notice of pending litigation, notwithstanding the inability to proceed as a class/collective action.  Notifying other employees of existing litigation (and their rights to be paid in accordance with wage and hour laws) would certainly be in line with the remedial purposes of the FLSA and related state wage and hour laws.  In any event, the court’s holding that an employer cannot hide its alleged violations for other employees certainly seems to be a step in the right direction.

Click Grabowski v. Robinson to read the entire Opinion.

Leave a comment

Filed under Arbitration, Class Certification, Class Waivers

E.D.Pa.: Dukes Does Not Affect Court’s Analysis On 216(b) Conditional Cert Motion; Defendant’s Motion to Reconsider Denied

Spellman v. American Eagle Exp., Inc.

In one of the first decisions, post-Dukes, to clarify what affect the Supreme Court’s recent decision will have on conditional certification of FLSA cases, the answer appears to be not much.

In Dukes, the Supreme Court held that the trial court had inappropriately certified a class of over a million women employed by Wal-mart, based on claims of gender bias.  The Supreme Court reasoned that the plaintiffs had not met their burden to demonstrate the requisite commonality required by FRCP 23.  In the wake of Dukes, there was much speculation as to whether courts would extend the reasoning in Dukes to cases seeking conditional certification of collective actions under 216(b) of the FLSA.  In one of the first decisions rendered on this issue, the answer appears to be a resounding no.

This case was before the court on the defendant’s motion seeking reconsideration of the court’s prior order conditionally certifying a class of drivers employed by defendant.  Plaintiffs alleged that defendant, a trucking company, improperly misclassified all of its drivers as independent contractors, when they were really employees.  Holding that plaintiffs had met their lenient burden of proof as so-called stage one, the court conditionally certified a nationwide class of drivers, all of whom had been classified as independent contractors.  Following the Duke’s decision, the defendant sought reconsideration of the order conditionally certifying the class.  Denying the motion, the court explained that the differences between FRCP 23, the class action provision under which Dukes was decided and 216(b), the opt-in provision for FLSA collective actions render Dukes inapplicable in the context of an FLSA collective action.  As such, the court denied defendant’s motion.

The court reasoned:

“The instant case is a collective action brought pursuant to the FLSA, 29 U.S.C. § 216(b). Unlike Rule 23 class actions. the FLSA requires collective action members to affirmatively opt in to the case. See § 216(b). To determine whether the proposed group of plaintiffs is “similarly situated,” and therefore qualified to proceed as a conditional collective action, a district court applies a two-step test. See Smith v. Sovereign Bancorp, Inc., No. 03–2420, 2003 U.S. Dist. LEXIS 21010 (E.D.Pa. Nov. 13, 2003). In the first step, which is assessed early in the litigation process, the plaintiff at most must make only a “modest factual showing” that the similarly situated requirement is satisfied. See Bosley v. Chubb Corp., No. 04–4598, 2005 U.S. Dist. LEXIS 10974, at *7–9 (E.D.Pa. Jun. 3, 2005). The Plaintiffs have made this modest factual showing, and this Court’s analysis is not affected by Dukes. The second step of the collective action certification process will be conducted at the close of class-related discovery, at which time this Court will conduct “a specific factual analysis of each employee’s claim to ensure that each proposed plaintiff is an appropriate party.” Harris v. Healthcare Servs. Grp., Inc., No. 06–2903, 2007 U.S. Dist. LEXIS 55221, at *2 (E.D.Pa. Jul. 31, 2007). At this second stage, AEX may argue that Dukes‘s analysis of what constitutes a “common question” is persuasive to this Court’s analysis of whether an FLSA collective action should be certified. In the interim, AEX’s motion for reconsideration is denied.”

Click Spellman v. American Eagle Exp., Inc. to read the entire Order.

Leave a comment

Filed under Class Certification, Collective Actions, Independent Contractor vs Employee

9th Cir.: Defendant in Putative Wage and Hour Class Action May Not “Pick Off” Class With OJ to Named Plaintiff

Pitts v. Terrible Herbst, Inc.

This case was before the Ninth Circuit on any issue that has become more and more prevalent in recent years, with the increased wage and hour putative class and collective action filings.  Specifically, the issue before the Ninth Circuit was “whether a rejected offer of judgment (OJ) for the full amount of a putative class representative’s claim moots a class action complaint where the offer precedes the filing of a motion for class certification.”  The Ninth Circuit held that it does not and a defendant may not “pick off” a class by making such an offer to the named-plaintiff alone.

The procedural history in the case is worth discussing, because there were other issues, not discussed in detail, also addressed in the opinion.  The trial court had not set a bright-line deadline for filing a motion for class certification simultaneously.  And, because the defendant failed to provide plaintiff with the records pertaining to the putative class members during the initial discovery period, plaintiff filed a motion to compel and sought to extend the discovery deadline as well.  The court ultimately granted both motions.  However, while it held that the OJ did not moot the claim, it nonetheless dismissed the case, because the plaintiff had failed to move for class certification as of the initial discovery deadline.  This appeal ensued.

After reviewing surveying applicable case law from around the country, the court held that the district court below properly concluded that a defendant may not “pick off” a putative class action, by tendering payment to the named-plaintiff alone.

Other issues the court discussed included whether state law class actions (Rule 23 classes) are “inherently incompatable” with FLSA opt-in actions.  However, because the plaintiff had volutarily dismissed his FLSA claims at the lower court, the Ninth Circuit declined to address this hot-button issue, addressed earlier in the year by the Seventh Circuit and currently pending before the Third Circuit.  The court did rule however, that the court below erred in dismissing the case based on plaintiff’s perceived failure to move for class certification in a timely manner.  On this issue the Ninth Circuit opined, “[w]ithout a clear statement from the district court setting a deadline for the filing of the motion for class certification, Pitts could not predict that he was expected to file his motion by the end of the initial discovery deadline.”

Click Pitts v. Terrible Herbst, Inc. to read the entire decision.

Leave a comment

Filed under Class Certification, Offer of Judgment

S.D.Fla.: Defendant May Not Seek SJ Against Individual Plaintiffs Where Case Remains Certified At Stage 2

Hernandez v. Starbucks Coffee Co.

In this case plaintiffs, “store managers” at Starbucks claimed they had been uniformly misclassified as exempt employees and wrongly denied overtime as a result.  The case was before the court on defendant’s motion for summary judgment regarding 4 individual plaintiffs in the (certified) class—on the ground that these Plaintiffs offered generally consistent testimony that compels the conclusion that they are exempt “executive” employees as a matter of law.  Significantly, prior to defendant filing its motion for summary judgment, the court had denied defendant’s motion to decertify the class.  The court denied defendant’s motion, largely on the ground that it is inappropriate for a defendant to attempt to target individual plaintiffs for summary judgment, where the class is proceeding as a whole and liability will therefore be determined on a classwide rather than individual basis.

The court explained:

“Before reaching the merits of this argument, the Court must first consider whether it is even proper for Defendant to move for summary judgment as to selected individual Plaintiffs when the Court is presented with a collective action. Relying upon Hogan v. Allstate Ins. Co., 361 F.3d 621, 623 (11th Cir.2004), Defendant argues that where a “FLSA collective action has been conditionally certified but no ruling has been made as to whether the case will proceed to trial as a collective action, the district court may entertain summary judgment motions as to individual plaintiffs.” [DE–241, pg. 12]; see also Lindsley v. Bellsouth Telecomm., Inc., Case No. 07–6569, 2009 WL 322144, at *2 (E.D.La. Feb.9, 2009) (denying motion to strike motion for summary judgment against an individual, named plaintiff, finding it “appropriate to choose [the individual plaintiff] as a test plaintiff to resolve the issue of employee versus independent-contractor status.”).

In response, Plaintiffs argue that the Court should reject Defendant’s attempt to have its motion treated as one directed to only certain individuals, as opposed to the class as a whole, pointing to Judge Marra’s conclusion in Pendlebury v. Starbucks Coffee Company, Case No. 04–80521–CIV–KAM, DE–495 (S.D. Fla. filed Jan. 8, 2008). Plaintiffs point out that unlike Hogan, 361 F.3d at 623, neither this Court nor Plaintiffs have consented to a “test plaintiff” procedure, and Defendant cannot randomly select certain individual Plaintiffs and at the same time seek to prohibit Plaintiffs from using testimony from other Plaintiffs in order to oppose the entry of summary judgment. Defendant attempts to refute this argument by contending that Rule 56(a) permits it to seek summary judgment as to a claim or defense, or part of a claim or defense, and reiterates the holding in Hogan. Defendant also argues that Plaintiffs have not cited to any authority prohibiting the Court from considering such a motion where as here the Court has not yet conducted a stringent review of the propriety of collective treatment.

Importantly, subsequent to Defendant filing the instant motion for summary judgment, on June 28, 2011, this Court denied Defendant’s motion for decertification [DE–300], concluding that Plaintiffs are similarly situated and can proceed as a class. As such, the Court has now conducted a stringent review of the propriety of collective treatment and found collective treatment to be appropriate. Defendant’s reliance on Hogan as its basis for moving for summary judgment as to only four (4) individual Plaintiffs is misplaced. Defendant similarly attempted to raise this argument and rely on Hogan in filing its motion for partial summary judgment in Pendlebury. The Pendlebury court rejected Defendant’s argument, pointing out that in Hogan the court had specifically authorized the selection of test plaintiffs for purposes of discovery and motions for summary judgment. Case No. 04–80521–CIV–KAM, DE–495 at pg. 3. The court concluded that “allowing Defendant to move for summary judgment against particular individuals who are indistinguishable from other members of the class defeats the entire purpose of a collective action.” Id. at 5. Instead, the court held that since the action was certified as a collective action, the court would “only address dispositive motions that resolve common issues of law or fact as to the entire class or an identifiable subclass.” Id.

Similarly here, the Court has already concluded that collective treatment is appropriate and has not authorized the use of “test” plaintiffs. Instead it appears that Defendant unilaterally selected individuals as its “test” plaintiffs. Notably, Defendant does not argue that these Plaintiffs somehow represent a “subclass” or otherwise address the Pendlebury court’s ruling on this issue in any manner. Consequently, the Court finds that it is not proper for Defendant to move for summary judgment as to individual Plaintiffs given the Court’s recent conclusion that Plaintiffs shall proceed as a class.”

Leave a comment

Filed under Class Certification, Collective Actions

S.D.N.Y.: Class Action Waiver Unenforceable in FLSA Case, Because Cost of Individual Litigation vs. Potential Recovery Prohibitive

Sutherland v. Ernst & Young LLP

This case was before the court on Defendant’s motion to stay the proceedings and compel arbitration on an individual (rather than class/collective) basis.  There was no dispute as to whether the Plaintiff had executed the arbitration agreement, containing the class waiver, however the court held that the class waiver was unenforceable, after a lengthy discussion of Second Circuit law and the impact of the recent United States Supreme Court case, Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S.Ct. 1758 (2010).

The court reasoned:

“Because the Amex decision retains its persuasive force, the Court applies the test adopted in Amex to determine the enforceability of the class waiver provision here at issue. In the totality of the circumstances, the Court finds that the class waiver provision is invalid because it prevents Sutherland from vindicating her statutory rights.

1. Cost to Individual Plaintiff Versus Potential Recovery

The record supports Sutherland’s argument that her maximum potential recovery would be too meager to justify the expenses required for the individual prosecution of her claim. Sutherland alleges “an actual overtime loss of approximately $1,867.02, with potentially liquidated damages of an equal amount under the FLSA.” (Folkenflik Decl. ¶ 8; see also Sutherland Deck. ¶ 4.) If her only option were to prosecute her claim on an individual basis, Sutherland would be required to pay expenses that would dwarf her potential recovery. 

Sutherland’s uncontested submission estimates that her attorney’s fees during arbitration will exceed $160,000, and that costs will exceed $6,000. (Folkenflik Decl. ¶ 20, 24.) Sutherland will utilize expert assistance in support of her claims.(Id. ¶ 22.) Her expert, a professor of accountancy, has submitted an affidavit stating that his fees may exceed $33,500, and that he requires a retainer payment of $25,000. (Carmichael Decl. ¶ 5.) In sum, Sutherland would be required to spend approximately $200,000 in order to recover double her overtime loss of approximately $1,867 .02. Only a “lunatic or a fanatic” would undertake such an endeavor. Carnegie v. Household Intern., Inc., 376 F.3d 656, 661 (7th Cir.2004). Indeed, rather than prosecuting her low-value, high-cost claim on an individual basis, Sutherland “would give up any rights” she might have to recover overtime payments allegedly owed to her. (Sutherland Decl.¶ 2.)

Pursuant to the E & Y Agreement, Sutherland is responsible for the Court Equivalent Fee, or a fee specified by the arbitration provider, whichever is less; arbitration fees and costs are to be shared equally between the parties. (Reece Decl. Exh. D¶ IV.P.) Sutherland has submitted an uncontested affidavit stating that arbitration fees would amount to $24,000, and that the applicable Court Equivalent Fee is $350. (Folkenflik Decl.¶ 24.) E & Y’s offer to pay such costs, which the Court has factored into Sutherland’s expenses as detailed above, thus lessens her burden by $12,350. Although this amount is not insignificant, it is hardly enough to allow Sutherland to bring her claims on an individual basis: she would still be required to spend approximately $200,000 on attorney’s fees and costs, as well as expert fees, in order to recover double her overtime loss of approximately $1,867.02.

E & Y’s attempt to distinguish the cost-recovery differential in Amex from the differential present here is unavailing. The “median plaintiff” in Amex would have recovered damages of $1,751, and the expert’s services would have cost at least several hundred thousand dollars. Amex, 554 F.3d at 317. According to E & Y, a “median plaintiff” in the instant matter could recover “substantially more,” and expert fees here amount to “a small fraction” of those at issue in Amex. (Def. Reply at 6-7.) The Amex decision did not, however, set a cost-to-recovery ratio below which claims are deemed “prosecutable.” The court instead embraced a functional approach, which “depends upon a showing that the size of the recovery received by any individual plaintiff will be too small to justify the expenditure of bringing an individual action.” Amex, 554 F.3d at 320. Sutherland has satisfied her burden on that score.

E & Y also cites to authorities in which the cost-recovery differential was held not to preclude the prosecution of claims on an individual basis. Such decisions are either inapposite or unpersuasive. In Pomposi v. GameStop, Inc., for instance, a class waiver was enforced where the amount in controversy was $11,000, and plaintiff’s total fees and costs ranged from $46,000 to $62,000.09 Civ. 0340, 2010 WL 147196, at *7 (D.Conn. Jan. 11, 2010). The court in Pomposi did not, however, meaningfully discuss plaintiff’s ability to retain counsel notwithstanding the differential between potential costs and recovery. E & Y cites Ornelas v. Sonic-Denver T, Inc., No. 06 Civ. 253, 2007 WL 274738 (D.Colo. Jan. 29, 2007), as standing for the proposition that “compelling arbitration would not preclude plaintiff from pursuing his claims where damages were at least $3500.” (Def. Mem. at 12.) But the plaintiff in Ornelas was allegedly entitled to (i) a trebling of the approximately $3500 in actual damages, and (ii) unspecified punitive damages and interest. Id. at *6. Moreover, the plaintiff in Ornelas apparently would not incur any expert witness fees. Id. at *7. Finally, E & Y offers Anglin v. Tower Loan of Miss., Inc., 635 F.Supp.2d 523 (S.D.Miss.2009) as precedent for “compelling arbitration where damages, attorney’s fees and punitive damages would result in [a] recovery of over $5,000.” (Def. Reply at 12.) The nub of Anglin, however, was that the plaintiff “made no effort” to demonstrate the prohibitive costs of individual arbitration. Anglin, 635 F.Supp.2d at 529. By contrast, Sutherland has “substantial[ly] demonstrat[ed]” that an inability to prosecute her claims on a class basis “would be tantamount to an inability to assert [her] claims at all.” Amex, 554 F.3d at 302-03 n.1.

2. Ability to Obtain Legal Representation

Even if Sutherland were willing to incur approximately $200,000 to recover a few thousand dollars, she would be unable to retain an attorney to prosecute her individual claim. This is due largely to the E & Y Agreement’s obstacles to reimbursement of fees and expenses. Whether attorney’s fees and expenses incurred during arbitration are compensable is subject to the discretion of the arbitrators. (Reece Decl. Exh. D ¶ IV.P.3.) The amount of such reimbursement is also left to the arbitrators’ discretion. (See id. (arbitrators may award attorney’s fees, “in whole or part, in accordance with applicable law or in the interest of justice”); 29 U.S.C. § 216(b) (providing for the reimbursement of “reasonable” attorney’s fees).)

In light of the foregoing, Sutherland cannot reasonably be expected to retain an attorney to pursue her individual claim, and E & Y has not submitted an affidavit stating otherwise. Sutherland cannot afford to advance the fees and costs in order to hire an attorney on an hourly basis: she has remained unemployed since her termination from E & Y in December 2009; she has no savings, and owes $35,000 in student loans. (Sutherland Decl. ¶ 5.) Counsel for Sutherland will not prosecute her individual claim without charge, and will not advance the required costs where the E & Y Agreement’s fee-shifting provisions present little possibility of being made whole. (Folkenflik Decl. ¶ 25.) As the uncontested affidavit of Sutherland’s counsel reflects, Sutherland would find no attorney willing to represent her under the circumstances. (Id. ¶ 27.) Cf. Kristian, 446 F.3d at 60 (“[I]t would not make economic sense for an individual to retain an attorney to handle one of these cases on an hourly basis and it is hard to see how any lawyer could advise a client to do so.”) (internal quotations omitted).

Sutherland’s only option in pursuing her individual claim is thus to retain an attorney on a contingent fee basis. But just as no rational person would expend hundreds of thousands of dollars to recover a few thousand dollars in damages, “no attorney (regardless of competence) would ever take such a case on a contingent fee basis .” Caban v. J.P. Morgan Chase & Co., 606 F.Supp.2d 1361, 1371 (S.D.Fla.2009); see also Folkenflik Decl.¶ 27. Cf. Kristian, 446 F.3d at 59 (“[I]t would not make economic sense for an attorney to agree to represent any of the plaintiffs in these cases in exchange for 33 1/3% or even a greater percentage of the individual’s recovery.”) (internal quotations omitted). E & Y has submitted no evidence that an attorney would expend approximately $200,000 in time and costs in return for a mere chance to earn potentially one-third of Sutherland’s less than $4,000 recovery.

If Sutherland could aggregate her claim with the claims of others similarly situated, however, she would have no difficulty in obtaining legal representation. (See Folkenflik Decl.¶ 25; see also Pl. Reply at 3.) This is because class proceedings “achieve economies of time, effort, and expense….” Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 616 (1997) (internal quotations omitted).

3. The Practical Effect of Waiver

Enforcement of the class waiver provision in this case would effectively ban all proceedings by Sutherland against E & Y. She will be unable to pursue her claims, even if they are meritorious. As a result, E & Y would enjoy de facto immunity from liability for alleged violations of the labor laws. The legislative purposes in enacting such laws-including, for example, combating “labor conditions detrimental to the maintenance of the minimum standard of living” FLSA § 2(a), 29 U.S.C. § 202(a), and assuring workers “additional pay to compensate them for the burden of a workweek beyond” 40 hours per week, In re Novartis Wage and Hour Litig. Litig. 611 F.3d 141, 150 (2d Cir.2010)-would go unfulfilled. “Corporations should not be permitted to use class action waivers as a means to exculpate themselves from liability for small-value claims.” Dale v. Comcast Corp., 498 F.3d 1216, 1224 (11th Cir.2007).

4. Summary

Having examined the totality of the facts and circumstances, the Court finds that the class waiver provision here at issue is unenforceable because it prevents Sutherland from vindicating her statutory rights. See Amex, 554 F.3d at 302-03 n.1.

V. Future Proceedings

Although the class waiver provision is unenforceable, the Court cannot order E & Y to submit to class arbitration. After the offending provision is severed from the E & Y Agreement, (see Reece Decl. Exh. D ¶ V.F.), the Agreement is rendered silent as to whether class arbitration is permissible. In accordance with Stolt-Nielsen, class arbitration may not be imposed on parties whose arbitration agreements are silent on the permissibility of class proceedings. 130 S.Ct. at 1764, 1775. See also Fensterstock v. Educ. Fin. Partners, 611 F.3d 124, 140 (2d Cir.2010). The Court must accordingly deny E & Y’s motion to compel arbitration.”

It will be interesting to see whether courts in other circuits will follow this well-reasoned opinion.  This is an area of FLSA jurisprudence where there is a wide divergence of opinions.  The Eleventh Circuit for example has long-held that FLSA Collective Action rights can be waived by agreement.

Click Sutherland v. Ernst & Young LLP to read the entire opinion.

Leave a comment

Filed under Arbitration, Class Certification, Class Waivers