Duane Morris Takeaways: On October 3, 2024, the Seventh Circuit upheld the decertification of a class of satellite technicians in a wage and hour suit against DirectSat USA LLC ("DirectSat") on the grounds that a class action was not the best method of resolving the lawsuit. The ruling in Jacks v. Directsat USA, LLC, Case No. 23-3166, 2024 U.S. App. LEXIS 25099 (7th Cir. Oct. 3, 2024), is significant, as it represents the first time the Seventh Circuit has taken a definitive position on resolving "issues class actions" under Rule 23(c)(4), a topic that is currently the subject of a circuit split. Although the Seventh Circuit ultimately agreed with the majority approach adopted by the Second, Third, Fourth, Sixth and Ninth Circuits – that permits certification as long as common questions predominate in resolving the individual issues to be certified – it also clarified that district courts should look at the relationship any certified issues have to the dispute as a whole.
Background
DirectSat (owned by UniTek USA, LLC) installs and services residential satellite dishes throughout the state of Illinois. The company employs satellite technicians to install and maintain the satellites, and it compensates them on a per-installation basis (though the technicians record their time worked in order to ensure they are paid the legal minimum). Id. at *2. On February 9, 2010, three plaintiffs filed a class action against DirectSat, UnitTek, and certain company executives, alleging violations of the Illinois Minimum Wage Law ("IMWL"), the Fair Labor Standards Act ("FLSA"), and Illinois common law, claiming they were not paid for the time spent doing tasks such as maintaining their vehicles, mapping directions for service calls, and loading equipment prior to leaving for a job site. Id.
In June 2012, Judge Gottschall of the U.S. District Court for the Northern District of Illinois certified a class of full-time Illinois DirectSat satellite technicians who worked at the company from July 12, 2008 through February 9, 2010. This initial class was certified pursuant to Federal Rule 23(b)(3) for plaintiffs' IMWL claims. Eight months after the district court certified the Rule 23(b)(3) class, the Seventh Circuit affirmed a separate district court's decertification of a similar case captioned Espenscheid v. DirectSat USA, 705 F.3d 770 (7th Cir. 2013). Following the decision in Espenscheild, Judge Gottschall vacated the previous certification order and certified a second Rule 23(c)(4) "issue class," to resolve fifteen questions related to DirectSat's liability that plaintiffs argued could be decided on a class-wide basis, such as the definition of the satellite technicians' work day. Id. at*6.
The case was then re-assigned to another district judge, Judge Pacold, in August 2019, who proceeded to decertify the Rule 23(c)(4) class months before the case was scheduled to go to trial, on the basis that DirectSat's liability could not be resolved on a class-wide basis, and the fifteen certified issues would not resolve the lawsuit, given, amongst other things, the variance of the claims at issue. Id. at *9. Although the original named plaintiffs settled their claims individually, they reserved their right to appeal the decertification decision, which they did. On October 3, 2024, the Seventh Circuit affirmed the district court's decertification, though on slightly different grounds.
The Seventh Circuit's Ruling
The Seventh Circuit panel (comprised of Judges Easterbrook, Kirsch, and Lee) affirmed the decertification of the Rule 23(c)(4) issues class action. Writing for the court, Judge Lee first rejected plaintiff's arguments that Judge Pacold should have deferred to Judge Gottschall's ruling certifying the fifteen issues for trial under Rule 23(c)(4), given Rule 23's broad authority to revoke or alter class certification prior to a final judgement. Id. at *15. The Seventh Circuit also rejected plaintiffs' argument that Judge Pacold improperly considered merits questions at the class certification stage, observing that merits inquiries were appropriate in determining if Rule 23's certification prerequisites could be satisfied. Id.
The Seventh Circuit then turned to the issue of whether plaintiffs' class action was properly decertified, and concluded that it the district court did not err in doing so. The Seventh Circuit observed there was a circuit split regarding the interaction between Rule 23(b)(3) and Rule 23(c)(4). The Fifth Circuit currently limits Rule 23(c)(4) classes to instances where the plaintiff's cause of action, taken as a whole, satisfies Rule 23(b)(3)'s predominance requirement. By contrast, the Second, Third, Fourth, Sixth and Ninth Circuits permit Rule 23(c)(4) certification so long as common questions predominate in resolving the individual issues to be certified. Id. at *19.
Ultimately, the Seventh Circuit agreed with the majority approach, but also concluded that a class should not be certified under Rule 23(c)(4) unless the certification would be superior to any other methods of adjudicating the controversy. Id. Thus, in addition to demonstrating that common questions predominate as to each issue to be certified, the party seeking certification under Rule 23(c)(4) also must show the proposed issues would be the most practical and efficient way to resolve the litigation. Id. at *23. Using this approach, the Seventh Circuit took issue with the district court's ruling, because it examined whether common questions predominated the entire cause of action, rather than looking to see whether common questions predominated as to each of the certified issues. Id. Despite this, the Seventh Circuit agreed with the district court's determination that proceeding to trial on the certified issues would not be "superior to other available methods for fairly and efficiently adjudicating the controversy" as required by Rule 23(b)(3). Id.
Implications
Given that the Seventh Circuit's direction regarding how a district court should analyze a Rule 23(b)(4) issues class action, plaintiffs will now have the additional burden of demonstrating that the certified issues would be superior to other methods of adjudication. This ruling could provide employers with additional tools to defend against issues class actions, and impose a higher bar on plaintiffs seeking to take advantage of the issue class mechanism.
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