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Class Action Defense Cases–Lindsay v. GEICO: District Court Erred In Refusing To Exercise Supplemental Jurisdiction Over State Law Claimants Who Did Not Opt In to FLSA Class Action

Certification of Class Actions and Supplemental Jurisdiction – District Court Improperly Denied Class Certification of State Law Claimants Who Did Not Opt In to Federal Class Action Under FLSA (Fair Labor Standards Act) D.C. Circuit Holds

The FLSA (Fair Labor Standards Act) requires that potential class members affirmatively opt in to class actions based on the overtime pay provision. See 29 U.S.C. §§ 207, 216(b). Certain class actions under Federal Rules of Civil Procedure Rule 23, however, require that potential class members opt out of class action cases. See Fed.R.Civ.Proc., Rule 23(b)(3), (c)(2)(B). On May 26, 2006, the D.C. Circuit Court of Appeals held as a matter of first impression that the district court erred in refusing to exercise supplemental jurisdiction over the claim of, and in denying class action certification to, those state law class action claimants who did not also opt in to a FLSA overtime class action. Lindsay v. Government Employees Ins. Co., 448 F.3d 416 (D.C. Cir. 2006).

Plaintiffs filed a putative class action alleging that GEICO willfully misclassified certain employees as “administrative” in order to avoid paying them overtime in violation of FLSA, 29 U.S.C. § 207(a), and sought certification to pursue an opt in class action under FLSA. Lindsay, at 418. Plaintiffs also alleged that GEICO’s conduct violated New York’s Minimum Wage Act, N.Y. Labor Law, §§ 650 et seq., and sought certification to pursue an opt out class action pursuant to Rule 23. Id. As the D.C. Circuit summarized at page 418:

The district court denied certification of the state law class, concluding that the FLSA class certification procedure requiring all class members to affirmatively opt in precluded it from exercising supplemental jurisdiction over those state law claimants who did not affirmatively join the FLSA claim. We disagree and therefore reverse the order denying certification and remand to the district court.

The Circuit Court appreciated fully the confusion faced by the district court: the FLSA claim required class members to affirmatively opt in to be part of the class action against GEICO, id., at 418-19; Rule 23 required class members affirmatively opt out of the state law class action against GEICO, id., at 419-20.

First noting that “[t]his Circuit has yet to address the question of supplemental jurisdiction in the context of a federal opt-in class and a state opt-out class,” the district court briefly surveyed the decisions from other courts-both district and circuit-and ultimately concluded that “it would be inappropriate to exercise jurisdiction over plaintiffs who have not affirmatively opted into the federal action.” [Lindsay v. Gov’t Employees Ins. Co., 355 F.Supp.2d 119, 120, 121 (D.D.C. 2004).] Thus, it decided to exercise its supplemental jurisdiction over only the state law claims “of plaintiff McGruder and any New York plaintiff who is eligible to opt into the federal action and opts in by filing a notice of consent.” Id. at 123.

448 F.3d at 420 (italics added). But after a detailed analysis of supplemental jurisdiction under 28 U.S.C. § 1367(a), id., at 420-22, the D.C. Circuit held that the district court erred in denying “class certification based on its decision not to exercise supplemental jurisdiction” and “reverse[d] the district court’s denial of class certification to the state law claimants who did not also opt into the FLSA claim,” id., at 420, 424.

Lindsay also rejected GEICO’s claim “that the state law claims . . . are not part of the same case or controversy as the FLSA claims.” Id., at 422-23. The Court easily concluded “that the two claims ‘derive from a common nucleus of operative fact’ and thus form part of the same Article III case or controversy.” Id., at 424. And in the Circuit Court’s view, “so long as the district court has original jurisdiction over a single claim, it may exercise supplemental jurisdiction over any additional claim that forms part of the same Article III case or controversy.” Id., at 423.

NOTE: In addressing GEICO’s argument that the opt-in procedure under FLSA and the opt-out procedure under Rule 23 created a conflict, the D.C. Circuit concluded that the conflict was merely procedural: “While there is unquestionably a difference-indeed, an opposite requirement-between opt-in and opt-out procedures, we doubt that a mere procedural difference can curtail section 1367’s jurisdictional sweep.” Lindsay, 448 F.3d at 424 (italics in original).

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