High Court Ponders When Refused Settlement Offer Makes Lawsuit Moot 

 

Employers may settle sooner when defending themselves from Fair Labor Standards Act (FLSA) claims if the Supreme Court agrees with Genesis Healthcare Corp. that a case becomes moot when a plaintiff suing on her own receives an offer from the defendant to satisfy all of her claims. The case would be moot even if she refuses the offer and other plaintiffs might, if they’d been given the chance, have joined later in a collective action, the company maintained in a case that had oral arguments before the Supreme Court on Dec. 3, 2012 (Genesis Healthcare Corp. v. Symczyk, No. 11-1059).

Laura Symczyk, a registered nurse at a Genesis facility in Philadelphia, sued the company in 2009, claiming it violated the FLSA by deducting meal breaks automatically, even if she had not taken the breaks. She brought the case as a potential collective action, but, before any other plaintiffs could opt into the litigation, the company offered her $7,500—the full amount of her claimed damages—plus attorneys’ fees.

After Symczyk did not respond to the offer, the trial court dismissed her case as moot. The 3rd U.S. Circuit Court of Appeals reversed, finding that it would hinder the objective of class actions to let a defendant’s offer pre-emptively knock out the claims of as-yet unidentified plaintiffs, as noted in Columbia Law School release about the case.

Columbia Law School Professor Ronald Mann, who represents Genesis, noted in the release that Genesis “doesn’t feel like it should have to keep paying to defend a case it has offered to settle in full.” He elaborated, “It’s a basic question about class litigation that the court hasn’t addressed.”

Opposing Briefs

In a friend-of-the-court brief filed with the court, SHRM and other business groups agreed, saying that the 3rd Circuit’s decision “effectively transforms federal courts into roving commissions seeking evidence of potential wrongdoing involving parties not before the court, thereby creating an inquisitorial judicial system Article III [of the Constitution] prohibits.”

The brief said that two main factors have caused a 300 percent rise in FLSA actions over the past 10 years: the award of attorneys’ fees to successful plaintiffs, regardless of the wage amount in dispute, and the fact that an employer’s action does not have to be willful to violate the law.

“The practical reality is that putative collective actions under the FLSA impose significant costs on employers of every size and in every segment of the national economy,” the brief stated. It said the 3rd Circuit’s decision “deprives employers of a reasonable means to avoid burdensome litigation early on by offering complete relief to the only party before the court claiming injury, all for the policy-based reason of promoting private enforcement” of the law.

In another friend-of-the-court brief, the Service Employees International Union (SEIU) stated that “Genesis is asking this court to rule that a Rule 68 [of the Federal Rules of Civil Procedure] offer of judgment to a named plaintiff prior to other plaintiffs opting into a collective action moots the case, even when the offer was made prior to notice of the action being sent to other potential plaintiffs and thus prior to other potential plaintiffs having a meaningful opportunity to join the suit. Such a ruling would profoundly undermine the availability of collective actions and, in so doing, thwart the primary goal of the FLSA: protecting the most vulnerable workers from wage theft.”

The SEIU stated that due partly to the costs of litigation and size of individual recoveries, “low-wage working women like the nursing home workers in this case are unlikely to vindicate their rights under the FLSA unless they can do so in a collective action.”

Employer’s Argument

“The decision of the Court of Appeals deprives the defendant of the ability to free itself from litigation even when it is willing to pay complete relief to the sole plaintiff,” Mann said as he began his argument before the Supreme Court.

“Here, the plaintiff’s individual claims have not been fully satisfied,” noted Justice Elena Kagan. “She walked away with nothing. She walked away with no judgment, and she walked away with no $7,500.” She asked Mann, “How can it possibly be that her individual claim was moot?”

“We view it as a housekeeping question because it seems to us clear that, if the defendant no longer wishes to contest liability and formally offers to pay all of the relief that the person could possibly win in any formal litigation, it has to be the case that the individual’s interest is moot.”

“What do you do when you have a governing statute that says that an employee may bring suit for and in behalf of himself and other employees similarly situated?” Justice Ruth Bader Ginsburg asked, adding “Can you use a mere rule, Rule 68, to carve out what the statute authors authorize—that is, that the employee can seek relief on behalf of himself and others similarly situated? Mustn’t you give a chance for the statutory provision to work?”

“The statute does not say, ‘if a plaintiff files a case and alleges that other people are similarly situated, the case shall not be dismissed until the court has proceeded to conclusively determine the propriety of certification’ of a class,” Mann answered. “It doesn’t say that.”

Justice Sonia Sotomayor was skeptical, noting, “When I was a district court judge, if parties told me about their settlement discussion, I would get quite upset.” She emphasized that Rule 68 “says explicitly—explicitly: ‘Evidence of an unaccepted offer is not admissible except in a proceeding to determine costs.’ ” Sotomayor asked, “What permits you to use it as evidence of anything—mootness, I don’t care what you’re using it for—except in cost?”

“Trial courts that have considered this question have generally considered that the offer is admissible by analogy to Rule 408, which deals with settlement discussions more generally,” Mann answered.

Collective Action Undermined

“The mere receipt of an offer without more cannot possibly moot a case,” asserted Neal Katyal, an attorney at Hogan Lovells in Washington, D.C., who represents Symczyk. He added, “Mr. Mann is waxing nostalgic about an offer that literally has not given Ms. Symczyk a dime. She is as injured today as she was the day she filed her complaint. …You can’t force an offer onto a plaintiff that doesn’t award complete relief, because if you do so, it undermines the collective action aspect of the claim.”

“Well, it undermines the collective aspect if she never brings the suit in the first place,” Justice Antonin Scalia responded. “I don’t know that the law demands that there be a collective suit. If she doesn’t bring suit or if she brings suit and is given everything she wants, the case is over unless other people have come in.”

Anthony Yang, assistant to the Solicitor General at the U.S. Department, also argued in support of Symczyk, remarking, “A settlement offer does not moot a claim if it is not accepted. Individual freedom of contract is basic to our legal system, and mutual assent is always a necessary element for any settlement.”

Justice Stephen Breyer asked how Symczyk’s case differed from an employee who is “annoyed for a variety of reasons at the employer and he sues the employer for his pay for the month of October. The employer says, ‘He got his pay. I sent him the check. I mean, he gets it every month.’ And he says, ‘Yes, but I didn’t cash the check.’ Is there a case for controversy? He can go sue for his paycheck that he didn’t cash?”

“I’m not sure what the injury would be in that case,” Yang answered.

“Why is it any different when the defendant employer says, ‘here’s the check,’ and he says, ‘Oh, I didn’t cash it’?” Breyer asked.

Yang said Symczyk’s case was different, because hers involved a past injury.

“So if you’re due $100 from your employer, it’s a day late, he gives you $100, and he says, ‘well, here’s another dollar for interest,’ that, as you said, doesn’t eliminate the past injury?” Chief Justice John Roberts Jr. asked.

“It doesn’t eliminate the injury,” Yang responded. “It might be compensation for the injury.” He emphasized, “Once a past injury occurs, it’s there.” Symczyk’s claim isn’t just vexatious litigation, he added. “We have in the FLSA a judgment by Congress that employees have a right to go forward in the collective form.”

Yang elaborated, “When we have an allegation like we have here, where there is a widespread policy of deducting 30 minutes a day, notwithstanding the employer’s knowledge that the employees are working though their lunch break, there is every reason to think that there is a substantial body of employees similarly situated.”

Employer’s Rebuttal Argument

At the end of the argument, Ginsburg told Mann, “It seems to me that this case falls into a classic exception to mootness, which is defendant’s voluntary cessation doesn’t moot a controversy.” She cautioned, “If there is no issue preclusion, defendant doesn’t have to stop the practice, can continue the practice, and then every time there is a suit say, ‘OK, we’ll pay the judgment.’ ”

“In this particular case, there’s no further dispute likely to occur between these parties. She no longer works for us. There is no reason to think she is going to work for us again,” Mann answered. He said that if it hadn’t been for her attorneys, Symczyk would have received complete relief, and concluded, “We didn’t engage in our conduct any longer.”

Case’s Significance

In the Columbia Law School release, Mann noted that this case technically involves an FLSA “collective action,” where parties have to opt in, rather than a “class action,” where they have to opt out, such as in many state wage-and-hour claims. He predicted the justices would answer the issue before the court in a way that would apply to collective and class actions.

“If they answer that question [that] crisply, it’s a really big deal,” he said, but even if they don’t, a narrow ruling on collective actions could be an indication of how the court might rule in a class action, and given the importance of class actions to the plaintiffs’ bar, the decision is likely to be big news either way.

Allen Smith, J.D., is manager, workplace law content, for SHRM.