The Seventh Circuit ruled recently in Espenscheid v. DirectSat USA, LLC, No. 12-1943, 2012 WL 3156326 (7th Cir. Aug. 6, 2012), that a class representative may appeal a class decertification order notwithstanding his havng settled with the defendant. Writing for the Seventh Circuit, Judge Richard Posner held that a settling class representative could maintain standing to appeal a decertification order, among other reasons, because “allowing him to appeal will enable the viability of the class action suit to be authoritatively determined at the earliest opportunity.” Id. at *3.
In DirectSAT, three named plaintiffs brought class action and collective action suits under the Fair Labor Standards Act and related state law. The court certified and later decertified several classes, leaving the named plaintiffs to proceed in individual suits, which they settled with the defendants. The settlement reserved the plaintiffs’ right to appeal the decertification, which they did. The defendants argued that “the plaintiffs have suffered no injury as a result of the decertification” and thus sought dismissal of the appeal. Id. at *1. However, the court held that “the prospect of an incentive award,” due to the named plaintiffs contingent on the certification of the class, would be “sufficient to motivate” the plaintiffs to fully discharge the duties of class representatives. Id. at *3. In so finding, the court found that judicial economy would not be served by preventing the settling plaintiffs from appealing because “an unnamed class member” could simply “pick up the fallen spear and bring his own class action suit.” The court distinguished the settling plaintiffs’ pursuit of an incentive award from someone with a mere financial stake in the outcome of the lawsuit—like someone who has wagered on the outcome—because the settling plaintiffs “will be in effect partial assignees of the money awarded the class, because . . . they will be entitled to participate in the award as compensation for their services in obtaining it.”
In this particular case, the settlement agreement did not preclude the settling plaintiffs from appealing and, indeed, seemed to give the settling plaintiffs enough of a stake in the appeal so that standing could be satisfied. That said, the DirectSat decision should be a warning to defense counsel that merely settling with named plaintiffs will not necessarily derail a class action or collective action suit.