On September 30, 2013, Judge George B. Daniels of the U.S. District Court for the Southern District of New York in Johnson, et al v. Nextel Communications, Inc., et. al., 2013 U.S. Dist. LEXIS 141445 (S.D.N.Y. Sept. 30, 2013) certified a class action –  pursuant to Rule 23(c)(4) – of 587 employees of Nextel Communications, Inc. (“Nextel”) who allege that Nextel, and the former plaintiffs’ law firm representing these employees, engaged in various illegal acts against them by entering into a Dispute Resolution Settlement Agreement (“DSRA”) to resolve their employment discrimination claims. The employees also sought to certify of smaller sub-class against the employees former law firm directly, but Judge Daniels denied this request on grounds of preclusion.

The ruling provides an interesting spin on Comcast Corp. v. Behrend, 131 S. Ct. 1426 (2013), as well as the fall-out from tactics of a by-gone era when plaintiffs’ class action counsel used a “mass action” threat to secure settlements of employment discrimination claims.

Background To The Case

In or around 2000, a law firm representing 587 employees (current and former) entered into a DRSA with Nextel to resolve various discrimination claims. Id. at *7. As a result of the DSRA, the law firm received $5.5 million in attorneys’ fees as well as an additional $2 million to act as consultants to Nextel on its employment practices. Id. In total, the 587 employees received less than half of the amount that their law firm received as part of the DRSA. Id. As a result, the employees filed two state court actions in Colorado, which resulted in a $1.2 million class-wide settlement against the law firm, with 39 employees opting out of the settlement. Id.

Plaintiffs in Johnson – the 587 individuals whose claims against Nextel were resolved pursuant to the DRSA – sought to certify a proposed liability class against Nextel only as well as a sub-class made up of the 39 employees who opted out of the Colorado settlements against their law former law firm. Id. at *9-10.

Rule 23 Issues And Analysis

Judge Daniels first denied the Plaintiffs’ request to certify the 39-person sub-class against their former law firm. Id. at *11. Judge Daniels reasoned that by opting out of the class settlements in the two state court actions, these 39 individuals only preserved their individual claims against their former law firm. Id at *14. While noting that the “cornerstone” of Rule 23(b) is that class members are not unconditionally bound by a class settlement agreement that they disagree with, Judge Daniels held that, “an opt-out plaintiff cannot resurrect a putative class action under the guise of pursing their individual claims.” Id. Stated another way, Judge Daniels held “the only option available to a plaintiff once he chooses to opt out of a class is the option to ‘go it alone – or not at all…” Id.

Judge Daniels nonetheless held that certification of a class against Nextel was appropriate under rule 23(b)(3) as to certain liability issues stemming from the execution of the DRSA.  Judge Daniels determined that Plaintiffs established all four Rule 23(a) requirements – numerosity, commonality, typicality and adequacy of representation. Id. at *24-37. Judge Daniels also found that certification under Rule 23(b)(3) was appropriate because the class satisfied the predominance requirement given that, “questions of law or fact common to call members predominate over any questions affecting only individual members” as well as the superiority requirement. Id.  at *38.

In opposing certification, Nextel argued that the Supreme Court’s decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), precludes issue certification because that decision found Rule 23(b)(3) certification is improper when plaintiffs have not demonstrated that damages can be measured on a class-wide basis. Id. at *46. In rejecting this argument, Judge Daniels relied on a recent decision from Judge Oetken of the Southern District of New York in Jacob et. al. v. Duane Reade, Inc., 2013 WL 4028147 (S.D.N.Y. Aug. 8, 2013), which held a court can bifurcate adjudication of liability and damages by limiting class certification to a liability-only class under Rule 23(c)(4) in those instances where it is possible that individualized proof of damages could overwhelm common questions to defeat predominance under Rule 23(b)(3). Id. at *47. Based on this line of reasoning, Judge Daniels rejected Nextel’s argument, and held that Comcast does not apply to certification of liability only classes such as the one before him in this case. Id.

Implications For Employers

As we have previously blogged, workplace class actions are being reshaped before our very eyes, as courts across the country apply new Supreme Court decisions. The Johnson decision should serve as a reminder that when individuals opt-out of a class settlement, they are free to pursue their individual claims, but cannot, “have their cake and eat it to” by later trying to resurrect a putative class action under the guise of individual claims. Additionally, given Judge Daniels’ reliance on the Jacob decision (which defendants have sought leave to appeal to the Second Circuit), employers should be aware of this liability-only tactic that plaintiffs are using to sidestep the import of Comcast. Stay tuned.