Supreme Court Rules that FLSA Collective Actions Are Distinct From Rule 23 Class Actions, But Fails to Resolve Circuit Split on Effect of Unaccepted Offers of Judgment

On April 16, 2013, the U.S. Supreme Court ruled in Genesis Healthcare Corp. v. Symczyk, that a plaintiff-employee’s Fair Labor Standards Act (“FLSA”) collective action could not proceed because her claims were moot after the defendant offered the plaintiff, per Federal Rule of Civil Procedure 68, full relief for her individual claims. Although the decision is limited to FLSA collective actions, the Court’s rationale has the potential to apply to Rule 23 class actions as well.

By way of background, the plaintiff-employee brought a collective action against defendant Genesis Healthcare, which answered the Complaint and served an offer of judgment under Rule 68 in which Genesis agreed to pay plaintiff the full amount of her claim. When the plaintiff did not respond to the offer, Genesis filed a motion to dismiss for lack of subject matter jurisdiction, arguing that the plaintiff’s claim was moot because she “no longer possessed a personal stake in the outcome of the suit” due to the offer that made her whole. The District Court granted the motion to dismiss. On appeal, the Third Circuit found that that the offer made plaintiff whole − regardless of whether she accepted it, but reversed and held that the collective action should not be dismissed because the defendant attempted to “pick off” the plaintiff with a Rule 68 offer “before certification[, which] could short circuit the process, and, thereby, frustrate the goals of collective actions.”

The Supreme Court reversed in a 5-4 decision and held that the District Court had properly dismissed the action for lack of subject matter jurisdiction. Notably, the Court did not reach the issue of whether an unaccepted offer of judgment pursuant to Rule 68 would moot an individual plaintiff’s claim; finding that the plaintiff had failed to raise that argument so it was not properly before the Court. Because the named plaintiff’s claims were moot and no other plaintiffs opted in, the Court held that the lawsuit itself was thus moot. In so concluding, the Court held that “the mere presence of collective-action allegations in the complaint cannot save the suit from mootness once the individual claim is satisfied.”

The impact of the Genesis decision remains to be seen. Although the Court acknowledged that opt-in FLSA collective actions are distinct from opt-out Rule 23 class actions, the Court left open the possibility that Rule 23 class actions could similarly be dismissed when the class representative’s claim is rendered moot by a Rule 68 offer of judgment. The Court also left unresolved a split in the circuit courts as to whether an unaccepted offer of judgment will moot an individual plaintiff’s claim. Going forward, defendants in both FLSA collective actions and Rule 23 class actions will likely test the reach of the Genesis decision by making Rule 68 offers of judgment in an effort to “pick off” the named plaintiffs and argue that doing so mandates dismissal of the collective action. Only time will tell whether this strategy will receive judicial approval.

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