Ervin v. Os Rest. Serv. Inc.

• Decision Date: 18 January 2011
• Docket Number: No. 09–3029.,09–3029.
• Parties: Deneene D. ERVIN, et al., Plaintiffs–Appellants,v.OS RESTAURANT SERVICES, INC., doing business as Outback Steakhouse, Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

632 F.3d 971

78 Fed.R.Serv.3d 720

17 Wage & Hour Cas.2d (BNA) 97

Deneene D. ERVIN, et al., Plaintiffs–Appellants,

v.OS RESTAURANT SERVICES, INC., doing business as Outback Steakhouse, Defendant–Appellee.

No. 09–3029.

United States Court of Appeals, Seventh Circuit.

Argued April 2, 2010.Decided Jan. 18, 2011.

Douglas M. Werman, Attorney, Jamie G. Sypulski, Attorney (argued), Chicago, IL, for Plaintiffs–Appellants.Jane M. McFetridge, Attorney, Jackson Lewis, Chicago, IL, Paul DeCamp, Attorney (argued), Jackson Lewis, Reston, VA, for Defendant–Appellee.Kenneth J. Sugarman, Rudy, Exelrod, Zieff & Lowe, LLP, San Francisco, CA, Dean A. Romhilt (argued), Department of Labor, Fair Labor Standards Division, Washington, DC, for Amici Curiae.Before FLAUM, WOOD, and HAMILTON, Circuit Judges.WOOD, Circuit Judge.

In this appeal we consider whether employees who institute a collective action against their employer under the terms of the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 et seq. (“FLSA”), may at the same time litigate supplemental state-law claims as a class action certified according to Federal Rule of Civil Procedure 23(b)(3). The district court thought not; it rejected the plaintiffs' effort to proceed as a class under Rule 23(b)(3) on the ground that there is a “clear incompatibility” between the FLSA proceeding and the proposed class action. The problem, as the court saw it, stems from the fact that the FLSA requires potential plaintiffs to opt in to participate in an action, while the plaintiffs in a Rule 23(b)(3) class action are included in the case unless they opt out. Trying to use both systems side-by-side would be rife with complications, it concluded; more formally, it held that one could never find the superiority requirement of Rule 23(b)(3) satisfied if the case also involved an FLSA collective action.

The question whether these two distinct types of aggregate litigation may co-exist within one case has divided the trial courts in this circuit and elsewhere. In the Northern District of Illinois alone, compare Barragan v. Evanger's Dog and Cat Food Co., 259 F.R.D. 330 (N.D.Ill.2009), and Ladegaard v. Hard Rock Concrete Cutters, Inc., 2000 WL 1774091 (N.D.Ill.2000), with Riddle v. National Sec. Agency, Inc., 2007 WL 2746597 (N.D.Ill.2007), McClain v. Leona's Pizzeria, Inc., 222 F.R.D. 574 (N.D.Ill.2004), and Rodriguez v. The Texan, Inc., 2001 WL 1829490 (N.D.Ill.2001). As far as we can tell, no court of appeals has yet had occasion to address it. But see Wang v. Chinese Daily News, Inc., 623 F.3d 743, 753–55, 760–62 (9th Cir.2010) (holding that a district court properly certified a Rule 23(b)(2) class along with an FLSA collective action and properly exercised supplemental jurisdiction over the state-law claim); Lindsay v. Government Employees Ins. Co., 448 F.3d 416, 420–25 (D.C.Cir.2006) (concluding, in the context of an appeal under Rule 23(f), that the FLSA does not necessarily preclude an exercise of supplemental jurisdiction over related state-law claims); De Asencio v. Tyson Foods, Inc., 342 F.3d 301, 307–12 (3d Cir.2003) (concluding that a district court presiding over an FLSA collective action should not have exercised supplemental jurisdiction over parallel state-law claims).

We conclude that there is no categorical rule against certifying a Rule 23(b)(3) state-law class action in a proceeding that also includes a collective action brought under the FLSA. (We refer to these as “combined” actions, rather than “hybrid” actions, to avoid confusion with other uses of the term “hybrid”— e.g., for cases certified under more than one subsection of Rule 23(b).) In combined actions, the question whether a class should be certified under Rule 23(b)(3) will turn—as it always does—on the application of the criteria set forth in the rule; there is no insurmountable tension between the FLSA and Rule 23(b)(3). Nothing in the text of the FLSA or the procedures established by the statute suggests either that the FLSA was intended generally to oust other ordinary procedures used in federal court or that class actions in particular could not be combined with an FLSA proceeding. We reverse the district court's class-certification determination and remand for further consideration in accordance with this opinion.

I

The plaintiffs are former employees of an Outback Steakhouse in Calumet City, Illinois. The restaurant is owned and operated by the defendant, OS Restaurant Services, Inc.; we refer to the defendant as “Outback” throughout this opinion. The employees sued Outback on behalf of themselves and all others who had previously worked or were currently employed at the restaurant as hourly or tipped employees. (A tipped employee, like a waiter or bartender, is paid a tip-credit wage, which is less than the minimum wage; the expectation is that her earnings for each pay period, including both the base wage and tips, will equal or exceed the minimum wage.)

The complaint alleges that Outback's employee policies run afoul of the FLSA, the Illinois Minimum Wage Law, 820 ILCS 105/1 et seq. (“IMWL”), and the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 et seq. (“IWPCA”). Specifically, the plaintiffs argue that Outback violated the minimum wage and maximum hour provisions of both the FLSA and the IMWL in three ways: (1) by requiring tipped employees to perform tasks during which they could not earn tips; (2) by using money that tipped employees were required to deposit in a “tip pool” to make up for shortages in restaurant cash registers; and (3) by demanding that the tipped employees contribute an excessive amount of their tips to the tip pool. The plaintiffs' state-law claim under the IWPCA is based on their allegation that Outback altered entries in its timekeeping system to reflect fewer hours for each person, thereby enabling it to pay its employees for less time than they actually worked.

The plaintiffs moved for conditional approval of a federal collective action under section 16(b) of the FLSA, 29 U.S.C. § 216(b), which authorizes employees to act together to seek redress for violations of the statute's minimum wage and maximum hour provisions, see 29 U.S.C. §§ 206 and 207. The conditional approval process is a mechanism used by district courts to establish whether potential plaintiffs in the FLSA collective action should be sent a notice of their eligibility to participate and given the opportunity to opt in to the collective action. See, e.g., Myers v. Hertz Corp., 624 F.3d 537, 554–55 (2d Cir.2010). The plaintiffs proposed that notice be given to anyone who had worked as a tipped employee at Outback since 2005. At the same time, they sought certification under Rule 23(b)(3) of three different classes alleging state-law claims: (1) all tipped employees who earned less than minimum wage, in violation of the IMWL; (2) all tipped employees who worked more than 40 hours per week but were not paid overtime, in violation of the IMWL; and (3) all employees who by virtue of Outback's incorrect timekeeping were not paid for some of the time that they worked, in violation of the IWPCA.

A magistrate judge recommended that the district court permit the federal collective action to proceed but deny without prejudice certification of the Rule 23(b)(3) state-law classes. While the judge was satisfied that the numerosity, commonality, typicality, and adequacy requirements of Rule 23(a) had been met, he had one minor reservation and one major concern about the predominance and superiority requirements for a(b)(3) class. The minor point related to the predominance requirement: the plaintiffs could show, he thought, that common questions predominated with respect to their IWPCA theory and two of their three IMWL theories, but not for the claim that Outback forced tipped employees to perform non-tip duties. The more important stumbling block was the requirement “that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed.R.Civ.P. 23(b)(3). The judge decided that a Rule 23(b)(3) class will never be superior when another part of the case is proceeding under FLSA section 16(b), because of what he saw as the conflict between the two different forms of aggregate litigation.

The district court adopted the magistrate judge's recommendation. It refused to certify the class because there was “clear incompatibility between the ‘opt out’ nature of a Rule 23 action and the ‘opt in’ nature of a Section 216 action.” Without elaborating why it thought that this was such a severe problem, the court concluded that this conflict automatically meant that the class action device was not a superior mechanism for resolving the plaintiffs' state-law claims. It accordingly denied class certification of those theories and permitted the plaintiffs to move forward with their FLSA collective action. We granted the plaintiffs' petition under Rule 23(f) for an immediate appeal of the order denying class certification.

II

Outback rests its case for affirming the district court's class-certification decision exclusively on the argument that the plaintiffs cannot satisfy the requirements set out in Federal Rule of Civil Procedure 23(b)(3). There are a number of issues that are thus not before us. Outback does not complain about the district court's decision to permit the plaintiffs to proceed with their FLSA collective action; nor does it argue that the FLSA in any way preempts the state laws that the plaintiffs have invoked; nor has it suggested that the district court should have declined to exercise supplemental jurisdiction over the state-law claims (though the district court alluded to this question, and we return briefly to it later). In addition, no one questions whether the plaintiffs have satisfied the four requirements of Rule 23(a). This leaves us with the question whether the district court correctly ruled that the requirements of Rule...