Espenscheid v. Directsat USA, LLC

• Citation: 688 F.3d 872,19 Wage & Hour Cas.2d (BNA) 798
• Decision Date: 06 August 2012
• Docket Number: No. 12–1943.,12–1943.
• Parties: Aaron L. ESPENSCHEID, et al., Plaintiffs–Appellants, v. DIRECTSAT USA, LLC, et al., Defendants–Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

688 F.3d 872

19 Wage & Hour Cas.2d (BNA) 798

Aaron L. ESPENSCHEID, et al., Plaintiffs–Appellants,

v.DIRECTSAT USA, LLC, et al., Defendants–Appellees.

No. 12–1943.

United States Court of Appeals,Seventh Circuit.

Submitted June 29, 2012.

Decided Aug. 6, 2012.

Timothy D. Edwards (submitted), Michael J. Modl, Attorneys, Axley Brynelson, Heath Paul Straka, Attorney, Gingras, Cates & Luebke, Madison, WI, for Plaintiffs–Appellants.

Miguel A. Estrada, Attorney, Gibson, Dunn & Crutcher LLP, Washington, DC, for Defendants–Appellees.

Before BAUER, POSNER, and TINDER, Circuit Judges.

POSNER, Circuit Judge.

The three appellants are the named plaintiffs in a class action suit to enforce the Fair Labor Standards Act and parallel state laws. Actually only the supplemental state law claims were brought as class action suits, the suit under the FLSA being brought as a “collective action” under section 16(b) of that Act, 29 U.S.C. § 216(b). The difference (of no consequence to this appeal, as we'll see) between the two types of action is that in a collective action class members must opt into the suit in order to be bound by the judgment in it, while in a class action governed by Fed.R.Civ.P. 23 they must opt out not to be bound by the judgment.

The district judge certified several classes but later decertified all of them, leaving the case to proceed as individual lawsuits by the three plaintiffs, who then settled, and the suits were dismissed. The settlement reserved the plaintiffs' right to appeal the decertification, however, and they have appealed, and the defendants ask us to dismiss the appeal on the ground that the plaintiffs have suffered no injury as a result of the denial of certification and so the federal judiciary has lost jurisdiction of the case. When a case becomes moot on appeal by reason of settlement, the lower court's decision is not vacated, as it is when mootness supervenes without any voluntary act by the appellant, who therefore has a valid claim not to be subject to a decision that he was unable to challenge on appeal. E.g., U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18, 23–29, 115 S.Ct. 386, 130 L.Ed.2d 233 (1994); EEOC v. Watkins Motor Lines, Inc., 553 F.3d 593, 596–97 (7th Cir.2009). The claim of mootness in this case is based on a settlement, and so the relief sought by the defendants—a simple dismissal of the appeal, without conditions—is appropriate.

One might think that because the plaintiffs settled, the only possible injury from denial of certification would be to the unnamed members of the proposed classes; and if therefore the plaintiffs have no stake in the continuation of the suit, they indeed lack standing to appeal from the denial of certification. Premium Plus Partners, L.P. v. Goldman, Sachs & Co., 648 F.3d 533, 534–38 (7th Cir.2011); Pettrey v. Enterprise Title Agency, Inc., 584 F.3d 701, 705–07 (6th Cir.2009). This is not a case in which a defendant manufactures mootness in order to prevent a class action from going forward, as by making an offer of judgment that exceeds any plausible estimate of the harm to the named plaintiffs and so extinguishes their stake in the litigation. As we explained in Primax Recoveries, Inc. v. Sevilla, 324 F.3d 544, 546–47 (7th Cir.2003) (citations omitted), “the mooting of the named plaintiff's claim in a class action by the defendant's satisfying the claim does not moot the action so long as the case has been certified as a class action, or ... so long as a motion for class certification has been made and not ruled on, unless ... the movant has been dilatory. Otherwise the defendant could delay the action indefinitely by paying off each class representative in succession.”

But the plaintiffs point us to a provision of the settlement agreement which states that they're seeking an incentive reward (also known as an “enhancement fee”) for their services as the class representatives. In re Synthroid Marketing Litigation, 264 F.3d 712, 722 (7th Cir.2001); In re Continental Illinois Securities Litigation, 962 F.2d 566, 571–72 (7th Cir.1992); In re United States Bancorp Litigation, 291 F.3d 1035, 1038 (8th Cir.2002); 2 Joseph M. McLaughlin, McLaughlin on Class Actions § 6:27, pp. 137–42 (6th ed.2010). The reward is contingent on certification of the class, and the plaintiffs argue that the prospect of such an award gives them a tangible financial stake in getting the denial of class certification revoked and so entitles them to appeal that denial.

We can find only one case that touches on the issue, and the touch is light. The case is Narouz v. Charter Communications, LLC, 591 F.3d 1261, 1265 (9th Cir.2010). The plaintiff, who had an individual claim as well as being the representative of a class to which he belonged that had claims against the defendant, settled his individual claim in an agreement with the defendant that provided that the plaintiff “retains a continued financial interest in the advancement of the class claims, because [he] is to receive an award enhancement fee ($20,000) were the court to approve the [class] settlement.” The court concluded that given the plaintiff's “obvious financial interest in obtaining a reversal of the district court's decision,” he “maintains a sufficient personal stake in the class litigation to appeal the district court's denial of class certification.” But the plaintiff's financial interest was not limited to the possibility of an incentive award; he also had his interest as a class member, that is, his class claim as distinct from his individual claim, which was based on other allegedly unlawful conduct by the defendant; and it is uncertain whether the court thought the existence of that other interest was necessary in order to confer standing on the plaintiff to appeal from the denial of class certification, or whether the prospect of the incentive award was enough. It should have been enough. The prospect of such an award is akin to a damages payment agreed in a settlement to be contingent on the outcome of the appeal; and the prospect of such a payment, though probabilistic rather than certain, suffices to confer standing. Nixon v. Fitzgerald, 457 U.S. 731, 743–44, 102 S.Ct. 2690, 73 L.Ed.2d 349 (1982); Havens Realty Corp. v. Coleman, 455 U.S. 363, 370–71, 102 S.Ct. 1114, 71 L.Ed.2d 214 (1982); United States ex rel. Roby v. Boeing Co., 302 F.3d 637, 641 (6th Cir.2002). And since no minimum amount in controversy is specified as a condition of a federal court's having jurisdiction to decide a state law claim supplemental to a federal claim, see 28 U.S.C. § 1367(a), the modesty of the plaintiffs' stake in this appeal is irrelevant.

The class in Narouz had not yet been certified. Without certification there is no class for a plaintiff to represent, and so he cannot hope to obtain an incentive award; he has accomplished nothing for the class and his own claim has been satisfied as the result of a voluntary negotiation. But if he is permitted to appeal the denial of class certification and prevails and on remand remains the class representative despite having settled his individual claim, he can look forward to eventually receiving an incentive award.

It's true that having settled he will no longer have a stake in any damages that may be awarded to the class. And that will cast doubt on his adequacy to represent the class members, his interest in the case no longer being perfectly aligned with theirs. Cf. Amchem Products, Inc. v. Windsor, 521 U.S. 591, 625–28, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997); 1 William B. Rubenstein, Newberg on Class Actions § 3:44, pp. 294–95 (5th ed.2012). One can imagine for example a case in which the representative presses for an incentive award so large in relation to the judgment or settlement that if awarded it would significantly diminish the amount of damagesreceived by the class. Staton v. Boeing Co., 327 F.3d 938, 975–78 (9th Cir.2003); Scott v. First American Title Ins. Co., No. 06–cv–286–JD, 2008 WL 1914296, at *2–3 (D.N.H. Apr. 28, 2008); 2 McLaughlin, supra, § 6.27, p. 142. He would then have a clear conflict of interest as class representative. The present case, however, is not a consumer class action, in which damages per class member tend to be slight.

A settling plaintiff would be an adequate class representative if there were no significant conflict of interest and the prospect of an incentive award were sufficient to motivate him to assume the modest risks of a class representative and discharge the modest duties of the position fully (more on those risks and duties below). An important motivating factor is that if the class action suit fails, no incentive award will be made, while if the suit succeeds, in part at least as a result of the representative's strenuous efforts, the award may be larger the larger the settlement (or judgment) is, as in Ingram v. The Coca–Cola Co., 200 F.R.D. 685, 694 (N.D.Ga.2001), and Roberts v. Texaco, Inc., 979 F.Supp. 185, 200–02 (S.D.N.Y.1997). And since, if the settling plaintiff can't appeal, an unnamed class member can pick up the fallen spear and bring his own class action suit, as in Smentek v. Dart, 683 F.3d 373 (7th Cir.2012), judicial economy will rarely be served...