Court Opinion

ID: 9937250
Source: CourtListenerOpinion
Date Created: 2024-02-09 19:01:01.181297+00
Date Added: 2024-06-11T13:34:56.275099
License: Public Domain

Case: 22-20434     Document: 00517061282         Page: 1    Date Filed: 02/09/2024

           United States Court of Appeals
                for the Fifth Circuit                                  United States Court of Appeals
                                                                                Fifth Circuit

                                ____________                                  FILED
                                                                        August 16, 2023
                                 No. 22-20434                            Lyle W. Cayce
                                ____________                                  Clerk

   Timothy Klick; Wilton Chambers; Malik Aleem; John
   Potter; Anthony D. Woods,

                                                           Plaintiffs—Appellees,

                                      versus

   Cenikor Foundation,

                                           Defendant—Appellant.
                  ______________________________

                  Appeal from the United States District Court
                      for the Southern District of Texas
                           USDC No. 4:19-CV-1583
                  ______________________________

   Before Graves, Higginson, and Douglas, Circuit Judges.
   Dana M. Douglas, Circuit Judge:
         As neither a member of this panel, nor judge in active service,
   requested that the court be polled on rehearing en banc, the petitions for
   rehearing en banc are DENIED. Fed. R. App. P. 35 and 5th Cir. R.
   35. The petition for panel rehearing is GRANTED. We withdraw our
   previous opinion and substitute the following:
         Cenikor Foundation brings this interlocutory appeal challenging the
   district court’s threshold determination that a collective action of its drug
   rehabilitation patients may proceed under the Fair Labor Standards Act
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                                         No. 22-20434

   (“FLSA” or “the Act”), 29 U.S.C. § 201, et seq. Finding that the district
   court applied the incorrect legal standard in assessing employee status, we
   REMAND for consideration consistent with this opinion. Additionally, we
   REMAND for the district court to consider whether Cenikor Foundation’s
   offset defense precludes collective certification.
                                              I.
                                              A.
          Cenikor Foundation is a 501(c)(3) nonprofit rehabilitation center
   assisting individuals with alcohol and/or drug addiction, as well as behavioral
   health issues, with locations throughout Texas and Louisiana. At issue in this
   lawsuit is an adult long-term inpatient treatment program (“the Program”)
   run by Cenikor, in which patients were assigned jobs and required to work.1
          Cenikor describes the Program in therapeutic language, calling it
   “vocational therapy” which involves a “highly regulated regimen with
   clearly stated expectations for behavior and psychological and behavioral
   rewards,” including “morning and evening house meetings, job assignments,
   group sessions, seminars, personal time, recreation, and individual
   counseling.” Appellees describe Cenikor as a “staffing agency” who has
   “outsourced its patients through its Work Program to work for various
   private companies” to its benefit.
          The Program includes three specific phases: orientation, primary
   treatment, and reentry. During the orientation phase, lasting up to 60 days,
   patients “learned the rules of the program, participated in group and
   individual therapy, and worked with counselors to develop an individualized
   treatment plan.” When patients entered the primary treatment phase,

          _____________________
          1
              Since the summer of 2021, Cenikor had discontinued the Program.

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   lasting 16 to 18 months, Cenikor added “vocational therapy and training to
   the patients’ program.” The “vocational therapy” took place either in
   Cenikor’s own facilities2 or with one of the “community businesses” that
   partnered with Cenikor, and patients did not keep any of the money from
   their work. If patients reached the reentry phase, they were required to find
   full-time employment and arrange for a permanent residence and reliable
   transportation to complete the Program. It was only during this phase that
   patients began earning wages from their employer directly.
           Many long-term patients received treatment for free or at a reduced
   rate. All patients received access to room, board, food, clothing, security,
   counseling, transportation, and medical care during their tenure. Every
   patient signed a form explaining that Cenikor’s “comprehensive therapeutic
   treatment program includes work assignments as part of rehabilitation” and,
   “[r]esidents receive no monetary compensation for assigned responsibilities
   in the facility, or any on-the-job training during the primary treatment
   phase.” By signing, the patients attested that “I further understand that
   under no circumstances can Cenikor be under any obligation to me; that I am
   a beneficiary and not an employee.” Instead of making money off their
   “vocational therapy,” patients attested that they understood that the funds
   paid to Cenikor “go directly back to the Foundation to help offset the cost of
   treatment services.” To further offset costs, Cenikor also required patients
   to apply for government assistance, such as food stamps, and assign those
   benefits to Cenikor.
           As part of the Program, Cenikor had contracts with community
   business partners (“outside businesses” throughout) to provide Program

           _____________________
           2
             The patients who worked within Cenikor’s facilities are not a part of the proposed
   collective.

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   participants for particular jobs. These outside businesses were then billed by
   Cenikor for the hours worked by the Program participants. In 2017, Cenikor
   billed these outside businesses more than $7 million for the labor of the
   Program participants. In 2018, Cenikor invoiced $6.9 million to these outside
   businesses. Cenikor was paid directly for the labor provided by the Program
   participants at rates contractually agreed upon between Cenikor and the
   outside businesses. In accordance with labor laws governing overtime pay,
   Cenikor also charged outside businesses an overtime premium of 1.5 times
   the regular hourly rate when participants worked more than 40 hours a week.3
           Cenikor paid for workers’ compensation insurance for all Program
   participants and marketed this benefit to potential outside business partners.
   The Program did not vary across locations. Cenikor decided which outside
   businesses its patients were assigned to, and if an outside business wished to
   change the job duties of a patient, it was required to first obtain Cenikor’s
   permission to do so.
           If a patient is unwilling to perform a work assignment, they would be
   disciplined by Cenikor, up to and including termination from the Program
   and removal from the facilities. Cenikor’s intake forms indicated that if
   “unable to participate” in the Program, participants would “be subject to
   termination from Cenikor.”
                                              B.

           _____________________
           3
              The contract with the outside businesses regarding overtime pay provided:
   “Vocational workers are presumed to be nonexempt from laws requiring premium pay for
   overtime and holiday work, or weekend work.” (emphasis added). Although the contract
   clearly identified Cenikor’s patients as “nonexempt” from laws requiring premium pay, its
   CFO testified that it was intended to mean the patients were considered “volunteers.”
   However, Cenikor could and did bill these outside businesses overtime whenever a patient
   worked more than 40 hours in a week.

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          In 2019, after the Center for Investigative Reporting published a series
   of podcasts and articles “reporting that Cenikor had sent thousands of
   individuals in Louisiana and Texas to work without monetary compensation
   at major companies such as Walmart, Shell, and ExxonMobil,” various
   plaintiffs filed six different lawsuits against Cenikor in three different federal
   district courts. Named plaintiff Klick filed the first suit in the Southern
   District of Texas, and all lawsuits were transferred to that court and
   consolidated on February 25, 2020. Shortly after the case was filed, the
   plaintiffs filed motions for conditional certification under the then-widely
   used framework for conditional certification established in Lusardi v. Xerox
   Corp., 118 F.R.D. 341 (D.N.J. 1987). Following this court’s decision in Swales
   v. KLLM Transp. Servs., LLC, 985 F.3d 430, 434 (5th Cir. 2021), which
   rejected the Lusardi framework, and because Plaintiffs indicated that they
   would file an amended motion for certification following pre-certification
   discovery, the district court found the pending motions were moot and
   denied them without prejudice.
          The parties then exchanged written discovery and held depositions of
   the named plaintiffs and a Rule 30(b)(6) corporate representative of Cenikor.
   A total of 226 individuals consented to join the lawsuit as plaintiffs of the
   2,736 individuals that had participated in the Program since May of 2016.
          Following a renewed motion for certification, the district court
   certified a collective action under the FLSA. Specifically, the district court
   certified a “proposed class of individuals who participated in the primary
   phase of Cenikor’s long-term residential program from May 2016 to the
   present and performed work for outside businesses or individuals without
   monetary compensation.” Cenikor filed this interlocutory appeal pursuant
   to 28 U.S.C. § 1292 and now asks this court to reverse the district court’s
   decision to certify a collective action.

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                                           II.
          This court reviews the appropriate legal standard to apply when
   determining whether an individual is an employee under the FLSA de novo.
   Swales, 985 F.3d at 439. Once the correct legal standard is ascertained, we
   review the district court’s decision certifying a collective action for abuse of
   discretion. Id. “A district court abuses its discretion if it bases its decision on
   an erroneous view of the law or on a clearly erroneous assessment of the
   evidence.” Hesling v. CSX Transp., Inc., 396 F.3d 632, 638 (5th Cir. 2005).
                                          III.
          The Fair Labor Standards Act of 1983 created “a comprehensive
   federal wage-and-hour scheme.” Aldridge v. Miss. Dept. of Corrs., 990 F.3d
   868, 871 (5th Cir. 2021). Congress enacted the FLSA to eliminate “labor
   conditions detrimental to the maintenance of the minimum standard of living
   necessary for health, efficiency, and general wellbeing of workers.” Id. The
   principal purpose of the Act is “to protect all covered workers from
   substandard wages and oppressive working hours.” Id. (quoting Barrentine
   v. Arkansas-Best Freight Sys., Inc., 450 U.S. 728, 739 (1981)). Workers
   covered under the Act are entitled to a minimum wage and overtime
   compensation. 29 U.S.C. §§ 206-07.
          “The FLSA protects employees (not independent contractors) . . . .”
   Swales, 985 F.3d at 434. Moreover, collective actions may only proceed
   under the FLSA so long as the potential members are “similarly situated.”
   Id. at 433. “District courts should ‘rigorously enforce [the FLSA’s similarity
   requirement] at the outset of the litigation.” Id. at 443. In determining
   whether “employees” are “similarly situated,” district courts must
   scrutinize all facts and legal considerations material to determining such
   status, including merits questions. Id. at 434, 441-42. Here, where a merits
   question is wrapped up in a threshold determination—whether the

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   rehabilitation patients are considered employees entitled to compensation
   under the FLSA—the dispositive threshold issue must be resolved before a
   collective can be certified and notice can be sent. See id. at 441 (“The fact
   that a threshold question is intertwined with a merits question does not itself
   justify deferring those questions until after notice is sent out.”).
           However, we emphasize that a threshold determination is not a
   resolution of the merits question itself. Instead, a threshold determination
   should consider whether the merits question may be answered on a collective
   basis and should not serve as an endorsement of the ultimate outcome in the
   case.   Swales, 985 F.3d at 434 (discussing the importance of avoiding
   “signal[ing] approval of the merits”); Hoffman-La Roche, Inc. v. Sperling, 493
   U.S. 165, 174 (1989) (“[T]rial courts must take care to avoid even the
   appearance of judicial endorsement of the merits of the action.”).
                                          A.
           Cenikor argues that the district court applied the wrong legal standard
   to determine whether Cenikor’s patients were FLSA “employees.”
   Appellees argue that the district court properly applied binding Supreme
   Court precedent to the facts of this case in finding that the employment
   question may be decided on a collective-wide basis.
           Collective actions can be certified as to the very question of whether a
   specific group of individuals qualify as “employees” under the FLSA. See
   Hobbs v. Petroplex Pipe and Const., Inc., 946 F.3d 824, 828-29 (5th Cir. 2020).
   While the determination of whether an individual is an “employee” is a
   matter of law, there are often associated factual inquiries required before such
   a determination can be made. The ultimate determination turns on the
   “economic reality” of the relationship between the parties involved. See
   Tony & Susan Alamo Found. v. Sec’y of Lab., 471 U.S. 290, 301 (1985). An
   evaluation of economic reality, in turn, depends on the totality of the

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   circumstances. See Rutherford Food Corp. v. McComb, 331 U.S. 722, 730
   (1947). Two Supreme Court decisions are central to this analysis—Walling
   v. Portland Terminal Co., 330 U.S. 148 (1947) and Tony & Susan Alamo
   Foundation v. Secretary of Labor, 471 U.S. 290 (1985).
          Walling involved a FLSA minimum wage claim against a railroad
   company that offered training for prospective yard brakemen, which would
   typically last seven or eight days. 330 U.S. at 149. Trainees were not paid for
   work they performed during the training program, nor did they expect any
   compensation, except that the railroad company might hire them at the end
   of the training period and retroactively compensate them for work performed
   during the training period. Id. at 150. The trainees’ work did “not expedite
   the company business” but sometimes impeded it. Id. The Court held that
   the trainees were not “employees” under the FLSA. Id. at 153. Holding
   otherwise would “deprive [the trainees] of all opportunity to secure work,
   thereby defeating one of the [FLSA’s] purposes, which was to increase
   opportunities for gainful employment.” Id. at 151. Further, a person who,
   “without promise or expectation of compensation, but solely for his personal
   purpose or pleasure, worked in activities carried on by other persons either
   for their pleasure or profit,” is outside the scope of the FLSA. Id. at 152.
          In Alamo, the Court expanded its Walling analysis. The Alamo
   Foundation, a nonprofit religious organization, derived its income largely
   from the operation of commercial businesses staffed by its “associates,”
   most of whom were “drug addicts, derelicts, or criminals” before their
   rehabilitation at the Foundation. Alamo, 471 at 292. The associates received
   no cash salaries, but were provided with “food, clothing, shelter, and other
   benefits.” Id. The Secretary of Labor filed an action against the Foundation
   alleging violations of the minimum wage, overtime, and recordkeeping
   provisions of the FLSA. Id. at 293.

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          As in Walling, the Court stated that “an individual who, without
   promise or expectation of compensation, but solely for his personal purpose
   or pleasure, worked in activities carried on by other persons either for their
   pleasure or profit, is outside the sweep of the [FLSA].” Id. at 295 (internal
   quotation marks and citation omitted).          Although the Foundation’s
   associates protested coverage under the Act, the Court determined this was
   not dispositive because the test of employment is one of “economic reality.”
   Id. at 301. The fact that the compensation was primarily in the form of
   benefits, rather than cash, was “immaterial” in this context since such
   benefits are “wages in another form.” Id. Because the associates received
   in-kind benefits and were dependent on the Foundation for long periods of
   time, the Court held that the district court did not clearly err in finding they
   were “employees” within the meaning of the Act. Id.
          Here, the district court concluded that it was appropriate to apply the
   economic realities test set forth by our court in Hopkins v. Cornerstone
   America, 545 F.3d 338 (5th Cir. 2008), to determine whether the
   rehabilitation patients were employees under the FLSA. Although it shares
   the same name as the Supreme Court’s test in Alamo, the economic realities
   test was established to distinguish employees from independent contractors.
   Hopkins, 545 F.3d at 343-44. The Hopkins test considers (1) the degree of
   control exercised by the alleged employer; (2) the extent of the relative
   investments of the worker and the alleged employer; (3) the degree to which
   the worker’s opportunity for profit or loss is determined by the alleged
   employer; (4) the skill and initiative required in performing the job; and (5)
   the permanency of the relationship. Id. at 343 (citing Brock v. Mr. W.
   Fireworks, Inc., 814 F.2d 1042, 1043-44 (5th Cir. 1987)).
          In some ways, this test is inapposite. For example, the opportunity for
   profit or loss, or the relative investment in the business, are unlikely to be
   relevant when considering whether a rehabilitation patient is an employee.

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   See Purdham v. Fairfax Cnty. Sch. Bd., 637 F.3d 421, 433 (4th Cir. 2011)
   (“[T]he test is best suited to determine whether, as a matter of economic
   reality, an individual is in business for himself or herself as an independent
   contractor . . . [and] is of limited utility in determining whether an individual
   is an employee, as opposed to a volunteer.”) (internal quotation marks
   omitted). There is also some tension between this test and the instruction in
   Walling and Alamo that a court must consider whether the employee had an
   “expectation of compensation.” Walling, 330 U.S. at 152; Alamo, 471 U.S. at
   302. Whether a worker is an independent contractor or an employee, there
   is no doubt that both have an expectation of compensation.
          Circuit courts applying Walling and Alamo to rehabilitation patients
   have relied on a primary beneficiary analysis, a test commonly applied when
   evaluating whether volunteers, trainees, and interns are “employees” under
   the FLSA. See, e.g., Vaughn v. Phoenix House New York Inc., 957 F.3d 141,
   145-46 (2d Cir. 2020); Fochtman v. Hendren Plastics, Inc., 47 F.4th 638, 645
   (8th Cir. 2022); Armento v. Asheville Buncombe Cmty. Christian Ministry, Inc.,
   856 F. App’x 445, 452 (4th Cir. 2021) (unpublished).
          In Vaughn, the plaintiff entered a residential drug and alcohol
   treatment program at Phoenix House pursuant to a state-court-approved
   agreement to participate in a rehabilitation program, in lieu of incarceration
   for existing criminal charges. 957 F.3d at 144. Vaughn did not want to
   perform his work duties but was told that if he was removed from the program
   for noncompliance, he would go to jail, so he performed work responsibilities
   at Phoenix House for a little less than a year. Id. Vaughn then attempted to
   bring claims under the FLSA, but the Second Circuit held that he was not an
   “employee” under the FLSA. Id. at 146.
          The Second Circuit endorsed the district court’s application of a
   primary beneficiary test. Id. at 145. It emphasized the “three salient

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   features” of its primary beneficiary analysis, previously used to assess the
   nature of the relationship between an intern and his employer: (1) its focus
   on what the intern receives in exchange for work, (2) its flexibility to evaluate
   the economic reality of the relationship, and (3) its acknowledgement of
   considerations unique to intern-employer relationships, such as the
   educational or vocational benefits to the intern.4 Id. In applying the primary
   beneficiary test, the Second Circuit noted that Vaughn was not an employee
   despite having “received significant benefits from staying at Phoenix House,
   in large part because he was permitted to receive rehabilitation treatment in
   lieu of a jail sentence, and was provided with food, a place to live, therapy,
   vocational training, and jobs that kept him busy and off drugs.” Id. (quotation
   marks and citation omitted).

           _____________________
           4
               The Second Circuit applies the following non-exhaustive list of factors:
           1. The extent to which the intern and the employer clearly understand that there is
   no expectation of compensation. Any promise of compensation, express or implied,
   suggests that the intern is an employee—and vice versa.
           2. The extent to which the internship provides training that would be similar to
   that which would be given in an educational environment, including the clinical and other
   hands-on training provided by educational institutions.
          3. The extent to which the internship is tied to the intern’s formal education
   program by integrated coursework or the receipt of academic credit.
         4. The extent to which the internship accommodates the intern’s academic
   commitments by corresponding to the academic calendar.
            5. The extent to which the internship’s duration is limited to the period in which
   the internship provides the intern with beneficial learning.
           6. The extent to which the intern’s work complements, rather than displaces, the
   work of paid employees while providing significant educational benefits to the intern.
           7. The extent to which the intern and the employer understand that the internship
   is conducted without entitlement to a paid job at the conclusion of the internship.
   Vaughn, 957 F.3d at 145-46.

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          Likewise in Fochtman v. Hendren Plastics, Inc., the Eighth Circuit did
   not extend employee status to court-ordered participants of a nonprofit drug
   and alcohol recovery program (“DARP”). 47 F.4th 638, 641 (8th Cir. 2022).
   The participants could avoid imprisonment in a criminal case by agreeing to
   participate in DARP, which provided them with room, board, clothing, and
   other necessities, without charging costs or fees to participate. Id. DARP
   provided transportation to for-profit businesses, but did not compensate
   participants for their work, despite collecting an hourly rate from the for-
   profit businesses for the time worked by participants. Id. The Eighth Circuit
   found that “the overriding consideration is that the DARP participants
   undertook the recovery program for their own purposes to avoid
   imprisonment, and they had no reason to expect compensation from [the
   recovery program].” Id. at 646.
          Although not expressly described as a primary beneficiary analysis, we
   have utilized the primary beneficiary test when determining whether flight
   attendant trainees were employees entitled to FLSA protections. Donovan v.
   Am. Airlines, Inc., 686 F.2d 267 (5th Cir. 1982). In Donovan, American
   Airlines benefitted from requiring unpaid training, but the trainees were not
   employees because they attended “for their own benefit, to qualify for
   employment they could not otherwise obtain.” Id. at 272. Further, American
   Airlines did not receive an immediate benefit from the trainees’ activities, as
   they were not productive until after the training session ended. Id. In
   addressing an outlier decision that determined FLSA applied to a trainee, we
   noted that it reinforced our conclusion because the trainee “substituted for
   hired personnel, was included as a member of the full crew . . . and, during
   training, performed tasks necessary to the ship’s functioning.” Id. at 273
   (citing Bailey v. Pilots’ Assoc. for the Bay & River Del., 406 F.Supp. 1302 (E.D.
   Pa. 1976)). This bolstered our conclusion because in Bailey, the pilots’
   association, rather than the trainee, was receiving the most benefit from the

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   arrangement. See id. Thus, although the words were not explicitly used, we
   determined that the flight attendants were the primary beneficiaries of the
   relationship, not American Airlines. See id.
          The district court was understandably hesitant to apply this analysis
   because it “has not been endorsed by the Fifth Circuit in the context of
   rehabilitation services.” Today, we endorse it. In light of the court’s
   responsibility to assess the economic reality between the parties, a fact-
   intensive inquiry which requires a careful evaluation of the totality of the
   circumstances, we find that a primary beneficiary test provides a helpful
   framework for discerning employee status.           Non-exhaustive factors to
   consider include the plaintiffs’ expectation of compensation, the therapeutic
   value of the Program, whether the relationship displaces paid employees, and
   any other considerations that may “shed light on which party primarily
   benefits from the relationship.” See Eberline v. Douglas J. Holdings, Inc., 982
   F.3d 1006, 1018 (6th Cir. 2020) (quoting Solis v. Laurelbrook Sanitarium and
   School, Inc., 642 F.3d 518, 529 (6th Cir. 2011) (applying primary beneficiary
   analysis to students in a training environment)). These considerations are
   remanded to the district court to apply in the first instance.
                                          B.
          Cenikor also takes issue with the district court’s finding that the
   rehabilitation patients were “similarly situated” to each other for purposes
   of certifying a collective action. As noted, plaintiffs bear the burden of
   proving a collective is similarly situated. Swales, 985 F.3d at 442-43. The
   statute, however, does not define “similarly situated.” Id. at 435. As this
   court explained in Swales, “to determine if and when to send notice to
   potential opt-in plaintiffs,” “a district court should identify, at the outset of
   the case, what facts and legal considerations will be material to determining
   whether a group of ‘employees’ is ‘similarly situated.’” Id. at 441.

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          A showing that members of a collective action are similarly situated
   does not require members to be identically situated but requires plaintiffs to
   show a demonstrated similarity between the purported collective, such as a
   factual nexus that binds the claims together so that hearing all claims in one
   proceeding is fair to all parties and not beset with individual inquiries. See id.
   at 443. This requires a consideration of proposed defenses to determine
   whether they are so individualized that denial of certification is required.
          After the completion of preliminary discovery, the district court
   determined that the evidence and testimony showed that the key aspects in
   considering whether an employer-employee relationship exists may be
   resolved on a collective-wide basis because: (1) all patients signed the same
   paperwork disclaiming employee status and stating they would not be paid
   during the primary phase; (2) the paperwork promised that Cenikor would
   provide all basic personal needs including housing, food, emergency medical
   care, and clothing; (3) all plaintiffs agreed to perform work to receive these
   in-kind benefits; (4) all program participants received their work assignments
   and schedules from Cenikor; and (5) all plaintiffs were subject to the same
   organization-wide policies and procedures irrespective of location.
   Ultimately, the district court concluded that it could address whether the
   primary phase participants were FLSA employees on a collective basis
   because all proposed members were subject to a company-wide policy in
   which they performed labor without monetary compensation.
          Cenikor argues that its rehabilitation patients are not similarly situated
   and that the district court’s decision contravenes Swales. Appellees contend,
   however, that they have shown the patients were similarly situated and the
   district court correctly determined that these defenses could be addressed
   collectively.

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          We turn to Cenikor’s three proposed defenses—the Motor Carrier
   Act (“MCA”) exemption, the Rooker-Feldman doctrine, and the offset
   defense. The district court concluded that these defenses were either
   inapplicable or that Cenikor had not, at this stage, demonstrated they would
   require individualized inquiries.
          To qualify for the MCA exemption, a loader aka “an employee of a
   carrier” must have duties that include, “among other things, the proper
   loading of his employer’s motor vehicles.” 29 C.F.R. § 782.5(a) (emphasis
   added). Here, there is no allegation that any of the outside businesses were
   the patients’ employer. Instead, Cenikor is the sole employer defendant.
   Accordingly, the MCA defense does not apply to any individual patient.
          As to the Rooker-Feldman doctrine, the Fifth Circuit recognizes, in
   conformity with the Supreme Court, that Rooker-Feldman is a narrow
   jurisdictional bar. See Truong v. Bank of America, N.A., 717 F.3d 377, 381-82
   (5th Cir. 2013) (citing Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S.
   280, 284 (2005)). The doctrine applies only “where a party in effect seeks
   to take an appeal of an unfavorable state-court decision to a lower federal
   court.” Lance v. Dennis, 546 U.S. 459, 466 (2006). Here, this doctrine has
   no bearing on the alleged FLSA claims. Appellees are not “state court
   losers” who are challenging state court decisions that require them to attend
   Cenikor’s rehabilitation treatment center in lieu of serving jailtime. Rather,
   they are challenging Cenikor’s decision not to pay them for their labor in
   violation of federal law. Thus, the Rooker-Feldman doctrine is inapplicable to
   this case.
          Regarding the offset defense, the district court credited plaintiffs’
   argument that the calculations could be completed on a class-wide basis “by
   subtracting aggregate costs from aggregate payments and dividing by the
   number of participants to determine an average.” However, the evidence to

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Case: 22-20434      Document: 00517061282            Page: 16       Date Filed: 02/09/2024

                                      No. 22-20434

   support this is not fully developed. Because Swales requires that “[d]istrict
   courts . . . ‘rigorously enforce [the FLSA’s similarity requirement] at the
   outset of the litigation,” 985 F.3d at 443, we remand this defense for fuller
   consideration before concluding the proposed collective is similarly situated.
   The district court should explicitly consider whether there are wide and
   obvious liability variations that would pose a “threshold” issue “bar[ring]
   application of the FLSA.” Swales, 985 F.3d at 441.                 Accordingly, we
   REMAND to engage more with Cenikor’s offset defense. Because we
   remand, we do not address Cenikor’s arguments that the district court erred
   in requiring it to send notice to potential opt-in plaintiffs.
                                          IV.
          Because we conclude that the district court applied the incorrect legal
   standard in assessing employee status and did not engage directly with the
   offset defense as required prior to certifying a collective, we REMAND for
   consideration consistent with this opinion.

                        Certified as a true copy and issued
                        as the mandate on Feb 02, 2024
                        Attest:
                        Clerk, U.S. Court of Appeals, Fifth Circuit

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