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Feb. 10 — A federal district court erred by denying class certification of Applebees restaurant workers' wage and hour claims under New York state law solely because the workers' potential damages would have to be ascertained on an individual basis, the U.S. Court of Appeals for the Second Circuit ruled Feb. 10.
The Second Circuit joined at least six other federal appeals courts in ruling the U.S. Supreme Court decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (U.S. 2013), doesn't mean courts must find damages are capable of measurement on a classwide basis in order to certify class actions under Rule 23(b)(3) of the Federal Rules of Civil Procedure.
If the Second Circuit had affirmed the lower court's “overly expansive” reading of Comcast, it would have raised “a very serious barrier” to class certification in most cases, said Scott Michelman of Public Citizen Litigation Group in Washington, one of the lawyers representing the Applebees employees.
The district court would have barred Rule 23(b)(3) certification in any case in which damages must be calculated individually, and most wage and hour cases “fall into that category,” Michelman told Bloomberg BNA Feb. 10.
If the district court's view had prevailed, it would have been “almost impossible to bring class actions” for groups of workers asserting wage violations, as their damages would vary depending on location, work shifts, pay rates and other factors, Michelman said.
Just two days after the Supreme Court handed down Comcast, the U.S. District Court for the Northern District of New York rejected a Rule 23(b)(3) class action by four Applebees employees who alleged the restaurant chain's New York operator violated state law by not granting premium pay to employees working 10 hours or more and by subtracting pay for breaks the employees didn't actually take.
The district court reasoned the Supreme Court had ruled plaintiffs can't satisfy Rule 23(b)(3)'s criterion that common issues predominate over individual questions if they fail to present a “damages model that is susceptible of measurement across the entire class.”
Because damages for the putative class of Applebees' employees are “highly individualized,” the district court ruled as a matter of law that the named plaintiffs couldn't satisfy Rule 23(b)(3)'s predominance inquiry.
But the Second Circuit said Comcast didn't overrule circuit precedent that Rule 23(b)(3) class actions may be certified even if damages must be proven on an individualized basis.
Although the damages issue is relevant to whether wage and hour plaintiffs can show common issues predominate over individualized inquiries, it is just one factor in determining whether a Rule 23(b)(3) class action may proceed, the court said.
“To be sure, Comcast reiterated that damages questions should be considered at the certification stage when weighing predominance issues, but this requirement is entirely consistent with our prior holding that ‘the fact that damages may have to be ascertained on an individual basis is ... a factor we must consider in deciding whether issues susceptible to generalized proof outweigh individual issues,' ” Judge Christopher F. Droney wrote, citing McLaughlin v. Am. Tobacco Co., 522 F.3d 215 (2d Cir. 2008).
The Supreme Court in Comcast “did not foreclose the possibility of class certification under Rule 23(b)(3) in cases involving individualized damages calculations,” the Second Circuit said.
On remand, the district court must expand its class certification analysis beyond the question of whether the employees' damages would be capable of measurement on a classwide basis, the Second Circuit said.
The federal circuits that have considered the issue are in agreement that Comcast “did not radically reshape” the rules governing class actions, said Michelman of Public Citizen.
Instead, Comcast is significant because it focuses courts and litigants on damages at the class certification stage but it holds only that plaintiffs' proposed damages must “match the theory of liability,” Michelman said.
The Second Circuit “wisely rejected” a broader reading of Comcast that would bar Rule 23(b)(3) class actions whenever members of the proposed class are subject to individualized damages inquiries, Michelman said.
The Supreme Court's Comcast decision hadn't been widely interpreted when the district court in 2013 approved an interlocutory appeal of its decision denying class certification, said J. Nelson Thomas of Thomas & Solomon LLP in Rochester, N.Y., who also represents the Applebees employees.
But since that time, federal courts largely have rejected employers' arguments for a broad reading that Comcast precludes Rule 23(b)(3) certification whenever damages must be determined individually, Thomas told Bloomberg BNA Feb. 10. The Second Circuit's decision “put a nail in the coffin” of that argument within the circuit, he said.
The case now returns to the district court, where Thomas said he thinks the named plaintiffs “stand a very good chance” of class certification on their state law claims. If certified, the class would number “well over 10,000 employees” who have worked at Applebees locations in New York since 2004, Thomas said.
The district court denied class certification of the employees' New York spread-of-hours and rest break claims based solely on the damages question, without considering a magistrate judge's findings that the plaintiffs had presented common questions of law and fact regarding liability, the Second Circuit said.
“That holding was not required by Comcast, was contrary to the law of this circuit—left undisturbed by Comcast—that individualized damages determinations alone cannot preclude certification under Rule 23(b)(3), and cannot support the district court's denial of plaintiffs' motion for certification,” Droney wrote.
The Supreme Court's ruling in Comcast was “narrower” than represented by the district court, the Second Circuit said.
Instead, Comcast holds that “a model for determining classwide damages relied upon to certify a class under Rule 23(b)(3) must actually measure damages that result from the class's asserted theory of injury,” Droney wrote. “The [Supreme] Court did not hold that proponents of class certification must rely upon a classwide damages model to demonstrate predominance.”
That reading of Comcast is consistent with the Supreme Court's statement that its decision turned upon “straightforward application” of class certification principles, as well as with the subsequent federal circuit decisions applying Comcast, the Second Circuit said.
The Second Circuit declined the employees' invitation to certify their proposed class, saying the district court should decide that issue on remand.
“Whether to certify the class is within the discretion of the district court, largely because it is the district court that has the ‘inherent power to manage and control pending litigation,' ” Droney wrote. “We cannot hold, on this record, that an order denying certification upon consideration of Rule 23(b)(3) standards would be outside the range of permissible decisions upon the proper application of Comcast.”
Judges Dennis Jacobs and Lewis A. Kaplan joined in the decision.
In addition to Michelman and Thomas, Michael T. Kilpatrick of Public Citizen Litigation Group, Michael J. Lingle and Annette Gifford of Thomas & Solomon LLP and Frank S. Gattuso and Dennis G. O'Hara of O'Hara, O'Connell & Ciotoli in Fayetteville, N.Y., represented the employees. Craig R. Benson, Andrew P. Marks, Elena Paraskevas-Thadani and Erin W. Smith of Littler Mendelson in New York represented T.L. Cannon Corp. and the other defendants.
To contact the reporter on this story: Kevin McGowan in Washington at firstname.lastname@example.org
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Text of the opinion is available at http://www.bloomberglaw.com/public/document/MATTHEW_ROACH_MELISSA_LONGO_GARRETT_TICHEN_CHRISTINA_APPLE_Plaint.
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