Court Opinion

ID: 805996
Source: CourtListenerOpinion
Date Created: 2012-08-06 14:17:04+00
Date Added: 2024-06-11T18:00:18.115056
License: Public Domain

In the

United States Court of Appeals
              For the Seventh Circuit

No. 12-1943

A ARON L. E SPENSCHEID , et al.,
                                            Plaintiffs-Appellants,
                                v.

D IRECTS AT USA, LLC, et al.,
                                           Defendants-Appellees.

            Appeal from the United States District Court
               for the Western District of Wisconsin.
           No. 3:09-cv-625-bbc—Barbara B. Crabb, Judge.

      S UBMITTED JUNE 29, 2012—D ECIDED A UGUST 6, 2012

  Before B AUER, P OSNER, and T INDER, Circuit Judges.
  P OSNER, 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 conse-
quence to this appeal, as we’ll see) between the two types
2                                               No. 12-1943

of action is that in a collective action class members
must opt into the suit in order to be bound by the judg-
ment 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 decertifica-
tion, however, and they have appealed, and the de-
fendants 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 (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 continua-
tion of the suit, they indeed lack standing to appeal from
No. 12-1943                                                 3

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 satis-
fying 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 indefi-
nitely by paying off each class representative in succes-
sion.”
  But the plaintiffs point us to a provision of the settle-
ment 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
4                                                 No. 12-1943

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 Communica-
tions, LLC, 591 F.3d 1261, 1265 (9th Cir. 2010). The plain-
tiff, 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 con-
cluded 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 pay-
No. 12-1943                                                5

ment, though probabilistic rather than certain, suffices to
confer standing. Nixon v. Fitzgerald, 457 U.S. 731, 743-44
(1982); Havens Realty Corp. v. Coleman, 455 U.S. 363, 370-71
(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 ir-
relevant.
  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 (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
6                                                No. 12-1943

awarded it would significantly diminish the amount of
damages received 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 repre-
sentative. 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 repre-
sentative 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 representa-
tive’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 by preventing the settling plain-
tiff from appealing. Rather the contrary: allowing him
to appeal will enable the viability of the class action
suit to be authoritatively determined at the earliest op-
portunity.
No. 12-1943                                               7

  Moreover, if the class is certified as a result of the
appeal but the plaintiff appellant is replaced as class
representative, still the efforts that he had previously
expended, albeit unsuccessfully, on behalf of the class
might entitle him to a modest incentive award.
  The defendants argue that the plaintiffs’ claim to
have standing to appeal is nixed by the Supreme Court’s
decision in Vermont Agency of Natural Resources v. United
States ex rel. Stevens, 529 U.S. 765, 772-73 (2000), which
holds that merely having a financial stake in the
outcome of a lawsuit does not confer standing, because
“the same might be said of someone who has placed
a wager upon the outcome. An interest unrelated to
injury in fact is insufficient to give a plaintiff standing.
The interest must consist of obtaining compensation
for, or preventing, the violation of a legally protected
right. A qui tam relator has suffered no such inva-
sion—indeed, the ‘right’ he seeks to vindicate does not
even fully materialize until the litigation is completed
and the relator prevails” (citations and footnote omitted).
But the Court went on to uphold the relator’s standing
on the ground that the relator was a partial assignee of
the government’s recovery in the qui tam suit. It is the
same here. If a class is certified and is awarded a judg-
ment or settlement, the named plaintiffs will be in effect
partial assignees of the money awarded the class,
because like class counsel they will be entitled to par-
ticipate in the award as compensation for their services
in obtaining it.
  It is true that class actions are almost always the brain-
child of lawyers who specialize in bringing such actions.
8                                                 No. 12-1943

But they still have to find someone who is a member of
the prospective class to agree to be named as plaintiff,
because a suit cannot be brought without a plaintiff.
And a class action plaintiff assumes a risk; should the
suit fail, he may find himself liable for the defendant’s
costs or even, if the suit is held to have been frivolous,
for the defendant’s attorneys’ fees. Katz v. Household
Int’l, Inc., 91 F.3d 1036, 1040 (7th Cir. 1996); Blue v. United
States Department of the Army, 914 F.2d 525, 534 (4th
Cir. 1990). The incentive reward is designed to com-
pensate him for bearing these risks, In re Continental
Illinois Securities Litigation, supra, 962 F.2d at 571-72;
Rodriguez v. West Publishing Corp., 563 F.3d 948, 958-59
(9th Cir. 2009); cf. Cook v. Niedert, 142 F.3d 1004, 1016
(7th Cir. 1998), as well as for as any time he spent sitting
for depositions and otherwise participating in the litigation
as any plaintiff must do. The plaintiff’s duties are not
onerous and the risk of incurring liability is small; a
defendant is unlikely to seek a judgment against an
individual of modest means (and how often are wealthy
people the named plaintiffs in class action suits?). The
incentive award therefore usually is modest—the median
award is only $4,000 per class representative. Theodore
Eisenberg & Geoffrey P. Miller, “Incentive Awards to Class
Action Plaintiffs: An Empirical Study,” 53 UCLA L. Rev.
1303, 1308 (2006).
  The final question is whether the plaintiffs might be
entitled to an incentive reward in the collective action
as well (if it is certified), which is not identical to a
class action governed by Rule 23.
No. 12-1943                                                9

   We can’t find a reported appellate case that addresses
the question—and we also can’t see any difference
between a collective action and a class action that bears
on it. It is true that collective actions are not subject to
Rule 23 or mentioned in any other federal rule of civil
procedure, and from this it might be inferred that a collec-
tive action is just another name for permissive interven-
tion. But that position has been rejected. Hoffmann-La Roche
Inc. v. Sperling, 493 U.S. 165, 170-71 (1989); Woods v. New
York Life Ins. Co., 686 F.2d 578, 580 (7th Cir. 1982). For,
if that were all there is to collective actions, there
would have been no point in Congress’s authorizing
them in FLSA cases, as it did, expressly, in 29 U.S.C.
§ 216(b). Courts treat them as the equivalent of class
actions—and thus for example do not require motions
to intervene and do require certification, as in Spoerle v.
Kraft Foods Global, Inc., 253 F.R.D. 434, 438-39 (W.D. Wis.
2008)—except that in a collective action unnamed plain-
tiffs need to opt in to be bound, rather than, as in a
class action, opt out not to be bound.
  Collective actions are certified and decertified just
like class actions, unaffected by the absence of a gov-
erning rule of procedure. And “when a collective action
is decertified, it reverts to one or more individual
actions on behalf of the named plaintiffs,” Alvarez v. City
of Chicago, 605 F.3d 445, 450 (7th Cir. 2010)—which is
just what happens when a Rule 23 class is decertified:
the unnamed class members go poof and the named
plaintiffs’ claims revert to being individual claims. If the
denial of class certification is reversed, the suit will pro-
ceed with the plaintiffs as representatives of the opt-ins.
10                                              No. 12-1943

There is no relevant difference between the collective,
consisting of opt-ins, and the class, consisting of class
members minus the opt-outs.
  No provision of rule or statute authorizes incentive
awards in collective actions, but the same is true
regarding such awards in class actions, as we noted in
In re Continental Illinois Securities Litigation, supra, 962
F.2d at 571, where we suggested that such an award
could be thought of as part of the fee award to the class
attorneys—specifically “the equivalent of the lawyers’
nonlegal but essential case-specific expenses.” The FLSA
authorizes fee awards in collective actions, 29 U.S.C.
§ 216(b), just as Rule 23(h) does in class actions.
  We repeat our earlier point (equally applicable to col-
lective actions) that if appeals such as this were held
to be precluded on standing grounds, there would be
no judicial economies, since if the named plaintiffs
settle after denial of class certification and then exit
the scene another member of the class can step for-
ward and take the quitters’ place.
  The motion to dismiss the appeal for want of jurisdic-
tion is
                                                   D ENIED.

                           8-6-12