The Third Circuit Races to Clarify the Interaction of FLSA and Rule 23
Ellis & Winters
In its recent decision in In re Citizens Bank, N.A., 15 F.4th 607, 611 (3d Cir. 2021), the Third Circuit provided important guidance on the relationship between the opt-in collective action mechanism of the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 216(b), and the opt-out class action mechanism of Rule 23 of the Federal Rules of Civil Procedure. The Third Circuit explained how those two distinct aggregate litigation vehicles impact the procedural sequence and timing of factual determinations. The Third Circuit’s thorough and meticulous analysis serves as persuasive authority on these issues, for litigants inside and outside the Third Circuit.
Distinct Aggregate Litigation Vehicles
The In re Citizens Bank litigation involves two vehicles for aggregating claims: the opt-in collective action of FLSA and the opt-out class action of Fed. R. Civ. P. 23.
FLSA Opt-In Collective Action Mechanism
FLSA created both a statutory cause of action and an opt-in collective action mechanism to “manag[e] claims of multiple employees against a single employer.” In re Citizens Bank, 15 F.4th at 611 (quoting Halle v. W. Penn Allegheny Health Sys., Inc., 842 F.3d 215, 223 (3d Cir. 2016)). Under § 216(b), an employee may bring an FLSA cause of action against an employer “for and [o]n behalf of . . . themselves and other employees similarly situated.” However, “[n]o employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.” § 216(b). This aggregate litigation vehicle therefore allows multiple similarly situated employees to recover for an employer’s FLSA violation(s), but individuals must affirmatively opt in to be plaintiffs.
The majority of courts apply a two-step approach to FLSA collective action certification: (1) an initial conditional certification, and (2) a final certification. See Bah v. Enterprise Rent-A-Car Co. of Boston, LLC, No. 17-12542-MLW, 2021 WL 3932274, at *4 (D. Mass. Sept. 2, 2021) (noting the Second, Third, Sixth, Tenth, and Eleventh Circuits have endorsed the two-step approach; that lower courts within the Fourth, Seventh, Eighth, Ninth, D.C., and Federal Circuits have endorsed the two-step approach; and that only the Fifth Circuit has rejected it).
Conditional certification “permits  dissemination of a court-approved notice to all potential plaintiffs, who are then given the opportunity to affirmatively opt in . . . to the lawsuit.” In re Citizens Bank, 15 F.4th at 611. Plaintiffs generally must make only “a ‘modest factual showing’” that they are similarly situated to warrant conditional certification. Id. (quoting Halle, 842 F.3d at 224). The procedural sequence begins with conditional certification, certification-related discovery occurs after the opt-in period closes but before final certification, and the collective action is then adjudicated on the merits. Id.
Class Certification Under Rule 23
Rule 23 of the Federal Rules of Civil Procedure created the federal class action mechanism and procedure. Rule 23 is similar to § 216(b) in that both are aggregate litigation vehicles, but the two vehicles have significant differences. Unlike the modest factual showing required to satisfy § 216(b)’s standard for conditional certification, Rule 23 requires a preponderance of the evidence to show certain requirements are met. In re Citizens Bank, 15 F.4th at 612. Under Rule 23, the district court must determine whether plaintiffs have shown the putative class satisfies each of the four prerequisites set forth in Rule 23(a) (numerosity, commonality, typicality, and representative adequacy). Additionally, under Rule 23(b), the class action is appropriate where: (1) there is a risk of inconsistent or dispositive adjudications if the class is not certified; (2) injunctive or declaratory relief is appropriate; or (3) the class action is superior to individualized adjudication and common questions predominate. Moreover, the certification determination must occur “at an early practicable time” and be made pursuant to a “rigorous analysis.” Id. A Rule 23 certification decision may also be immediately appealable. Fed. R. Civ. P. 23(f).
In further contrast to § 216(b), under Rule 23(b)(3), “all individuals  within the class definition will be bound by the judgment unless they affirmatively request to be excluded” from the certified class. Id. Thus, Rule 23(b)(3) is an opt-out rule.
Notwithstanding these differences, the Third Circuit has long “held that an FLSA opt-in collective action is not, by its nature, incompatible with a parallel state law Rule 23 opt-out class action.” In re Citizens Bank, 15 F.4th at 612 (citing Knepper v. Rite Aid Corp., 675 F.3d 249, 261 (3d Cir. 2012)). Other federal appellate courts agree. See, e.g., Calderone v. Scott, 838 F.3d 1101, 1104 (11th Cir. 2016) (“Our sister Circuits have ruled, and we agree, that the FLSA’s plain text does not indicate that a collective action and a state-law class action cannot be maintained at the same time.”). Accordingly, plaintiffs may bring claims under both aggregate litigation vehicles concurrently.
The Claims and History of In re Citizens Bank
In In re Citizens Bank, the plaintiffs sought to employ both vehicles. In that case, a group of employees sued Citizens Bank. They alleged that bank policies and practices required Mortgage Loan Officers (“MLOs”) to work more than 40 hours per week without overtime pay, in violation of the FLSA and state law. The plaintiffs first sought conditional certification as an FLSA collective action. In May of 2016, the district court conditionally certified the action under § 216(b) and scheduled trial for September 2017. During the opt-in period, 351 additional plaintiffs joined the FLSA action.
The plaintiffs subsequently sought both to finalize FLSA certification and to certify Rule 23 classes. They proceeded contemporaneously under the opt-in collective action of § 216(b) as to the FLSA claims and the opt-out class action mechanism of Rule 23(b)(3) as to their state law claims.
One month before the scheduled trial, on August 22, 2017, the district court granted the plaintiffs’ motions for final certification of the FLSA collective action and class certification under Rule 23(b)(3). Reinig v. RBS Citizens, N.A., No. 15CV1541, 2017 WL 3599489, at *3 (W.D. Pa. Aug. 22, 2017), order vacated in part, 912 F.3d 115 (3d Cir. 2018). Citizens Bank petitioned the Third Circuit for immediate appellate review, under Rule 23(f), of the class certification, and the bank’s petition was granted.
The Third Circuit vacated the Rule 23 class certification, holding that the district court failed to sufficiently define the classes or class claims and that the certification analysis was insufficiently rigorous. Reinig v. RBS Citizens, N.A., 912 F.3d 115, 131 (3d Cir. 2018). On remand, Citizens Bank moved to decertify the FLSA collective action, and plaintiffs moved again for class certification.
Without ruling on the class certification motion, the district court denied the bank’s FLSA decertification motion, and set a trial for September 23, 2019 to determine a single issue: “Did Plaintiffs prove by a preponderance of the evidence that Citizens Bank had a policy or practice that caused mortgage loan officers to not report all of the hours they worked (i.e., to work ‘off the clock’)?” Reinig v. RBS Citizens, N.A., 386 F. Supp. 3d 602, 608 (W.D. Pa. 2019).
At the end of August, with trial approaching and class certification still undetermined, Citizens Bank moved to stay the trial. The district court denied the motion to stay. The bank petitioned for a writ of mandamus.
The Mandamus Petition
The bank sought an order requiring the district court to rule on the class certification motion (and to provide an opt-out period if a class were certified) before trying the FLSA issue. The bank also sought reassignment to a different judge. In re Citizens Bank, 15 F.4th at 615. The Third Circuit stayed the case pending resolution of the mandamus petition, and the district judge joined the bank’s request for reassignment on the same day.
The petition for mandamus was ultimately held to be partially mooted when the court requested reassignment, and those portions that were not moot were denied without prejudice, because the Third Circuit was “confident” a newly assigned district judge would reexamine class certification issues. Id. To effect reassignment, the Court of Appeals dissolved the stay.
The In re Citizens Bank opinion dissolved the stay and explained the original decision to issue the stay. Id. at 611. While the court discussed the four factors relevant to granting a stay, the Third Circuit’s opinion mostly focused on the likelihood that Citizens Bank would succeed on the merits of its mandamus petition.
The Trial-Before-Certification Sequence Was (Probably) Not Appropriate
The Third Circuit’s decision, while largely advisory because it explained the reasons motivating its stay instead of the merits, offered persuasive guidance on the following points:
- Did the district court’s “‘order of battle’ violate Rule 23 or create a substantial danger of unfair one-way intervention”?
- Is class certification “even possible after a trial on the merits has already taken place”?
- And, “could [there] be circumstances under which an FLSA trial might reasonably proceed prior to class certification in a parallel Rule 23 action”?
Id. at 621.
The Third Circuit held that the mandamus petition was sufficiently likely to succeed that it warranted a stay. In analyzing the petition’s likelihood of success, the court stated that allowing a trial on the “main factual question in the FLSA collective action” before Rule 23 certification “would be ignoring Rule 23’s text and history, flouting Supreme Court precedent, and departing from the case law of seven circuits while undercutting four others.” Id. at 616.
First, the court discussed the text of Rule 23, which requires “district courts to decide certification ‘[a]t an early practicable time after a person sues or is sued as a class representative.’” Id. at 617 (quoting Fed. R. Civ. P. 23(c)(1)(A)). The Third Circuit held that the lower court’s “plan to conduct” a single-issue trial “cannot satisfy any definition of ‘early,’” because “class certification . . . would remain unresolved until after” the trial, which would necessarily resolve factual issues pertaining to any class eventually certified. Id.
Next, the court analyzed the history and aims of Rule 23. It observed that the Rule’s “history confirms that a post-trial certification decision is strongly disfavored.” Id. In 2003, the current requirement that certification occur “at an early practicable time” replaced the previous requirement that it occur “[a]s soon as practicable.” Id. The language changed in 2003 to better reflect the Rule’s implementation and practice, but the timeliness requirement was originally added to remedy the unfairness of “one-way intervention.” One-way intervention was one “form of abuse” of the class action mechanism, by which class members could belatedly join in an action, allowing them to choose to benefit from a favorable judgment but avoid the binding effect of an unfavorable one. Id.
The Third Circuit went on to observe that, although the rigor necessary for a certification analysis can cause overlap between certification issues and the merits, the First, Second, Fourth, Seventh, Eighth, Tenth, and Eleventh Circuits require class certification prior to trial. Id. at 618 & n.11. Although it declined to join those circuits in its explanation of why it granted the stay, the In re Citizens Bank decision shows that there is no circuit split because the circuits that allow trial before certification do so only in cases where “the defendant consents.” Id. at 619 & n.12.
Finally, the court considered the practical implications of trial before certification in the context of wage-and-hour litigation, where the substantive federal and state claims overlap. In such cases, an “FLSA trial . . . would, effectively, both identify and determine the merits of the class members’ common factual question.” Id. at 620. This combination of substantive overlap and procedural sequence would result in the one-way intervention that Rule 23 sought to avoid. A certification after a verdict for the plaintiffs may result in a massive Rule 23 opt-out because individual plaintiffs have no incentive to remain in the class after favorable factual determinations; a certification after a verdict for a defendant binds only those plaintiffs who opted in to the FLSA action. Therefore, an outcome in favor of the defense could also result in increasing the defendant’s future litigation costs by increasing individual claims.
For all these reasons, the Third Circuit explained, Citizens Bank was sufficiently likely to succeed on the merits of its mandamus petition to warrant a stay.
Applying the Court’s Guidance
It bears repeating that, because of the procedural posture, In re Citizens Bank did not resolve any of the issues above on the merits, and therefore did not declare them to be the law. But the court’s explication is nonetheless helpful to class action defendants.
First, while plaintiffs may avail themselves of appropriate aggregate litigation measures, they may not benefit from procedural sequencing that allows them to circumvent any downsides attendant to those aggregate litigation measures. In other cases, plaintiffs may seek to employ different aggregate litigation forms with different attendant procedures and disadvantages. Class action defendants should actively seek to identify when an adversary’s conduct or proposed procedural sequence will have the effect of eliminating an advantage or disadvantage to either party built into an aggregate litigation mechanism.
Second, the Third Circuit has reminded both class action defendants and the federal district courts that class certification must occur before trial in every case where a defendant insists upon that procedural sequence. There is no circuit split: “no Court of Appeals has approved foisting trial-before-certification on an unwilling Rule 23(b)(3) defendant.” Id. at 619. Thus, a Rule 23(b)(3) defendant should consider objecting to the procedure and briefing the district court on the cogent analysis of In re Citizens Bank.
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