Raymond Richardson v. Wells Fargo Bank, N.A ( 2016 )

REVISION October 28, 2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
October 14, 2016
No. 15-20711
Lyle W. Cayce
Clerk
RAYMOND RICHARDSON; JUDITH GOTT; ANGELA KOLMANSBERGER;
JAMES CHAPLIN; LUCY GONZALES; DONNA LYNN PONTELLO; BILL
EARLY,
Plaintiffs - Appellants
v.
WELLS FARGO BANK, N.A.; WACHOVIA MORTGAGE CORPORATION;
WACHOVIA CORPORATION; WORLD MORTGAGE COMPANY, also
known as World Mortgage Co.; WELLS FARGO & COMPANY; WELLS
FARGO HOME MORTGAGE, INCORPORATED,
Defendants - Appellees
Appeal from the United States District Court
for the Southern District of Texas
Before KING, SMITH, and COSTA, Circuit Judges.
KING, Circuit Judge:
Plaintiffs–Appellants claim that Defendants–Appellees violated the Fair
Labor Standards Act (“FLSA”) by, inter alia, improperly classifying them as
exempt employees and failing to pay appropriate overtime. Plaintiffs–
Appellants, however, were also class members of a previously settled opt out
class action in California state court that released FLSA claims. The district
No. 15-20711
court concluded that the previous settlement could preclude the instant
litigation and, after determining that the previous settlement satisfied due
process requirements, granted the Defendants–Appellees’ summary judgment
motion. We agree and AFFIRM the judgment of the district court.
I. FACTUAL AND PROCEDURAL BACKGROUND
This appeal arises from a multi-district litigation involving claims that
Defendants–Appellees Wells Fargo Bank, N.A., Wachovia Mortgage
Corporation, Wachovia Corporation, World Mortgage Company, Wells Fargo &
Company, and Wells Fargo Home Mortgage, Incorporated (collectively “Wells
Fargo”) violated the FLSA by misclassifying home mortgage consultants
(“HMCs”) as exempt workers and failing to make appropriate overtime
payments. After the district court conditionally certified two collective
actions, 1 the majority of those who had opted in settled their claims in an
agreement approved by the district court. This settlement, however, excluded
1,516 plaintiffs who had opted into the instant action but were members of a
previously settled opt out class action in California state court (“California
Plaintiffs”). The California Plaintiffs are at the center of this appeal because
the parties dispute the preclusive effect of the settlement from the California
action: Lofton et al. v. Wells Fargo, San Francisco Superior Court Case No.
CGC-11-509502 (“Lofton”).
A. The Lofton Settlement
The origins of the Lofton litigation date back to 2005 when a class action
was filed in California state court on behalf of California HMCs alleging, inter
alia, that Wells Fargo misclassified HMCs as exempt employees and failed to
1 One collective consisted of Wells Fargo employees and one collective consisted of
Wachovia employees. On or around the end of 2008, Wachovia merged with Wells Fargo.
The complaint alleges that Wachovia similarly misclassified its mortgage consultants
(“MCs”), and after the merger, Wachovia stopped employing MCs around the end of 2009.
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No. 15-20711
pay appropriate overtime. That action was removed to federal court, where
over the succeeding years class certification was granted by the district court,
vacated by the Ninth Circuit, and as part of a renewed motion for certification
on remand, denied by the district court. See In re Wells Fargo Home Mortg.
Overtime Pay Litig., 268 F.R.D. 604, 606–09, 614 (N.D. Cal. 2010). During this
time, class counsel and Wells Fargo engaged in multiple mediation sessions,
ultimately reaching an agreement on behalf of California HMCs during a
mediation session in February 2011. In March 2011, the Lofton action was
filed in San Francisco Superior Court asserting state causes of action for, inter
alia, failing to pay appropriate overtime resulting from the misclassification of
HMCs. Notably, the first cause of action relied on alleged violations of the
FLSA as grounds for violations of California state law.
On April 27, 2011, the Lofton court granted preliminary approval of a
settlement for $19 million. As part of the settlement process, class members
were sent notice of the proposed settlement, as well as a claim form and an
exclusion form. To receive a portion of the settlement, class members had to
fill out and return the claim form. To opt out of the settlement, class members
had to fill out and return the exclusion form. The Lofton settlement covered a
broader class period than what is alleged in the instant action. 2
The settlement contained a release of certain claims against Wells Fargo,
which the notice sent to class members recounted in similar language in the
following paragraph under the heading “Release”:
The Joint Stipulation For Settlement and Release between the
parties contains a release of Wells whereby all Class Members
(other than those who file Exclusion Forms) fully and finally
release and discharge Wells from any and all applicable state and
2The Lofton class included Wells Fargo HMCs in California who worked at any time
between February 10, 2001, and March 26, 2011. Wells Fargo reclassified its California
HMCs as overtime eligible on March 27, 2011.
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No. 15-20711
federal law wage-and-hour claims, rights, demands, liabilities, and
causes of action of every nature and description, whether known
or unknown, arising during the Class Members’ Released Period,
including without limitation, statutory, constitutional, contractual
or common law claims for wages, damages, unpaid costs, civil or
statutory penalties (including without limitation, penalties under
the California Labor Code’s Private Attorneys General Act of 2004,
as amended in August 2004, California Labor Code sections 2698,
2699.3, and 2699.5), liquidated damages, punitive damages,
interest, attorneys’ fees, litigation costs, restitution, or equitable
relief, based on the following categories of allegations: (a) any and
all claims for the failure to pay any type of overtime or minimum
wages; (b) any and all claims for the failure to provide meal and/or
rest periods; (c) any and all claims for failure to provide accurate
or complete itemized wage statements; (d) any and all claims for
failure to timely pay final wages; (e) any and all claims stemming
from or based on the alleged misclassification of employees as
exempt employees; and (f) and any claims derived from or based
upon or related to or arising out of the factual predicate of the
Action (collectively, “Class Members’ Released Claims”). The
Class Members’ Released Claims include claims meeting the above
definition under any and all applicable California or federal laws,
statutes, regulations, and Wage Orders including any existing
under the Fair Labor Standards Act of 1938, as amended, and
California political subdivisions and municipalities.
Notwithstanding the foregoing, nothing in this Settlement
releases any claims that cannot be released as a matter of law.
(Emphasis added). On July 27, 2011, the Lofton court granted final approval
of the settlement, making the following relevant findings: (1) the settlement
“was entered into in good faith and . . . its terms [were] fair, reasonable and
adequate pursuant to Section 382 of the [California] Code of Civil Procedure”;
(2) the settlement was “reached as a result of informed and non-collusive arm’s
length negotiations, and . . . Plaintiff and Wells have conducted extensive
investigation and research, and their attorneys are able to reasonably evaluate
their respective positions”; and (3) the mailing of the notice of settlement, claim
form, and exclusion form to class members “fully satisfie[d] due process
requirements.” The Lofton court also declared that class members “who have
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No. 15-20711
not opted out of the Settlement are bound by the release.” Finally, the Lofton
court, “[w]ithout affecting the finality of the Judgment,” retained “continuing
jurisdiction over the construction, interpretation, implementation, and
enforcement of the Settlement . . . pursuant to California Rule of Court
3.769(h) and California Code of Civil Procedure section 664.6.” The judgment
was not appealed.
B. Other Developments in Lofton
Separate from the above litigation, the Initiative Legal Group (“ILG”)
represented about 600 California HMCs in numerous lawsuits against Wells
Fargo. In February 2011, ILG also mediated and reached an agreement 3 with
Wells Fargo, and Wells Fargo later paid nearly $6 million to ILG. Additionally,
ILG was present at the hearing on the preliminary approval of the Lofton
settlement. During this hearing, Lofton class counsel informed the court that
the claims of ILG’s clients “were essentially settled on the very same day in
front of the very same mediator . . . . Wells has a separate settlement
agreement with these folks.” Lofton class counsel continued: “And we’re not
going to be contacting anyone that are independently represented by . . . these
firms. Indeed the thought of the settlement was that these gentlemen
representing the two firms would have all their individual plaintiffs opt out. If
they did not, then they would be covered by the proposed class settlement.”
However, none of the ILG clients opted out of the Lofton settlement. This
meant that the ILG clients, who were also members of the Lofton class, not
only could receive some portion of the nearly $6 million payment, but also could
receive a portion of the Lofton settlement (and were in turn bound by it). After
making certain disbursements to its clients, ILG retained nearly $5 million of
the $6 million payment as attorneys’ fees.
3 The parties dispute whether this agreement was tentative.
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No. 15-20711
In September 2012, David Maxon, a class member from the Lofton
settlement and former ILG client, moved to intervene in Lofton and for a
temporary restraining order requiring, in part, that ILG deposit the payment
it received into a trust account. Maxon argued that the money retained by ILG
as attorneys’ fees should have been approved by the Lofton court as class action
attorneys’ fees. The court granted Maxon’s motion to intervene and issued a
temporary restraining order. On appeal, the California Court of Appeal
affirmed the issuance of the temporary restraining order, finding, in part, that
“[t]he class members were entitled to have ILG’s claim for fees in variance with
their fee agreement, and in such disproportion to the recovery obtained,
independently reviewed by the class action court.” Lofton v. Wells Fargo Home
Mortg., 179 Cal. Rptr. 3d 254, 267, 271 (Ct. App. 2014). The California Court
of Appeal went on to say that “[i]f the court determines that Maxon’s
allegations are true, it would be within the court’s jurisdiction to review the
supplemental fee agreement and to order the ILG attorneys to disgorge some
or all of the fees already received.” Id. at 267.
Following remand, multiple motions were filed in the Lofton court,
culminating in a hearing in June 2015 to resolve 11 pending matters. The
Lofton court determined that “ILG’s claimed fees are properly construed as
class action attorneys’ fees” and, therefore, should have been disclosed to the
court for approval. Furthermore, the Lofton court held that all of ILG’s claimed
fees should instead be disbursed to the class on a pro rata basis in proportion
to the amount that each class member previously received. Specifically, the
Lofton court found that, “[h]aving concealed its purported fee agreement from
the Court, and having tried to appropriate those funds to itself without Court
approval, this Court determines that ILG is not entitled to any of the claimed
fees.”
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No. 15-20711
In addition to the above rulings, the Lofton court denied a motion to
vacate the Lofton judgment for three independent reasons: (1) the motion was
untimely; (2) “there [was] no basis for [the] [c]ourt to exercise its jurisdiction
to modify or vacate the judgment”; and (3) even if there was a basis, it would
be unworkable to vacate the judgment because it would require returning the
parties to their positions prior to the judgment, meaning that the class
members would have to pay back the money that they received. The Lofton
court also denied a motion to intervene, which was brought by two of the
California Plaintiffs in this action, because (1) the motion was untimely;
(2) “the proposed intervention would unduly enlarge the issues before the
[c]ourt, and [was] not necessary to [the] matter”; and (3) the court refused to
issue an advisory opinion regarding the preclusive effects of the Lofton
judgment on the instant action.
Several of the issues, including the court’s denial of the motion to vacate,
are currently on appeal in California state court. The California Plaintiffs who
had their motion to intervene denied withdrew their appeal.
C. The District Court’s Grant of Summary Judgment
In the instant action, on September 2, 2014, Wells Fargo moved for
summary judgment arguing that the California Plaintiffs were precluded by
the Lofton settlement because none of the California Plaintiffs had opted out.
Of the 1,516 California Plaintiffs, 1,283 filed claim forms in Lofton while the
other 233 did not file claim forms (and therefore did not receive any settlement
payment). After summary judgment briefing was complete, the district court
requested additional briefing and eventually stayed the case for six months
because of the ongoing developments in Lofton.
On November 4, 2015, the district court granted Wells Fargo’s motion for
summary judgment. First, the district court held that the waiver of FLSA
claims as part of the Lofton settlement has res judicata effect even though it
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No. 15-20711
was accomplished through an opt out class action, finding persuasive the
reasoning from Lipnicki v. Meritage Homes Corp., No. 3:10-cv-605, 2014 WL
923524 (S.D. Tex. Feb. 13, 2014). Second, the district court held that there was
no due process violation that would preclude the application of res judicata
because the interests of the Lofton class representative and class counsel were
always aligned with the interests of the California Plaintiffs, and any harm
from the settlement fund being diluted was cured when the Lofton court
required the ILG funds to be disbursed to the class. The district court further
found no issues with the notice used in the Lofton settlement. Finally, the
district court held that the Lofton settlement was a final judgment as of July
27, 2011, for res judicata purposes, and the issues currently on appeal in
California did not make the judgment any less final. The California Plaintiffs
timely appealed.
II. STANDARD OF REVIEW
This court reviews “[a] grant of summary judgment . . . de novo, applying
the same standard on appeal that is applied by the district court.” Tiblier v.
Diabal, 743 F.3d 1004, 1007 (5th Cir. 2014) (quoting Coliseum Square Ass’n,
Inc. v. Jackson, 465 F.3d 215, 244 (5th Cir. 2006)). “[I]f the movant shows that
there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law,” then summary judgment should be granted.
Fed. R. Civ. P. 56(a). “When reviewing a grant of summary judgment, we
review the facts drawing all inferences most favorable to the party opposing
the motion.” Martin v. Spring Break ’83 Prods., L.L.C., 688 F.3d 247, 250 (5th
Cir. 2012).
Res judicata is an affirmative defense, and the defendant bears the
burden to prove that defense. Taylor v. Sturgell, 553 U.S. 880, 907 (2008).
However, a plaintiff asserting that preclusion should not apply because the
prior class action settlement violated due process has the burden of proving a
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No. 15-20711
due process violation. See Gonzales v. Cassidy, 474 F.2d 67, 75 (5th Cir. 1973)
(“[G]enerally the class will be bound unless the party attacking the judgment
can show that the class was inadequately represented.”). 4
III. RES JUDICATA
We first turn to the question of whether the Lofton settlement—in which
a state court approved an opt out class action settlement that released FLSA
claims—can preclude the California Plaintiffs’ FLSA claims at issue in this
appeal. “The Full Faith and Credit Act mandates that the ‘judicial proceedings’
of any State ‘shall have the same full faith and credit in every court within the
United States . . . as they have by law or usage in the courts of such
State . . . from which they are taken.’” Matsushita Elec. Indus. Co. v. Epstein,
516 U.S. 367, 373 (1996) (omissions in original) (quoting 28 U.S.C. § 1738). In
other words, a federal court must “give state court judgments the same
preclusive effect they would have in another court of the same state.” In re
Lease Oil Antitrust Litig. (No. II), 200 F.3d 317, 320 (5th Cir. 2000).
In analyzing whether the Lofton settlement has preclusive effect under
the Full Faith and Credit Act, we find instructive the Supreme Court’s two-
part framework from Matsushita: (1) whether “state law indicates that the
particular claim or issue would be barred from litigation in a court of that
state,” and (2) whether the FLSA expressly or impliedly creates an exception
4 The California Plaintiffs do not directly address Wells Fargo’s citation to Gonzales
for the proposition that the party attacking the prior judgment has the burden of establishing
a due process violation. While this court is aware that the Tenth Circuit has stated that the
party asserting claim preclusion as a defense bears the burden of establishing that there was
adequate representation in the prior case, Pelt v. Utah, 539 F.3d 1271, 1283–84 (10th Cir.
2008), we do not agree that the Supreme Court’s decision in Taylor v. Sturgell, 553 U.S. 880(2008), requires the burden to be placed on the party asserting claim preclusion, cf. William
B. Rubenstein, Newberg on Class Actions § 18:38 (5th ed. 2016) (describing the Tenth
Circuit’s decision in Pelt as relying “on a false analogy”).
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No. 15-20711
to the Full Faith and Credit Act such that we should not give preclusive effect
to the judgment of the state court. Matsushita, 516 U.S. at 375.
A. Res Judicata Under California Law
Under California law, res judicata “applies if (1) the decision in the prior
proceeding is final and on the merits; (2) the present proceeding is on the same
cause of action as the prior proceeding; and (3) the parties in the present
proceeding or parties in privity with them were parties to the prior proceeding.”
Fed’n of Hillside & Canyon Ass’ns v. City of L.A., 24 Cal. Rptr. 3d 543, 557 (Ct.
App. 2004). “A judicially approved settlement agreement is considered a final
judgment on the merits.” Howard v. Am. Online Inc., 208 F.3d 741, 748 (9th
Cir. 2000) (applying California law). In a class action settlement, absent class
members are also bound by the doctrine of res judicata. Villacres v. ABM
Indus. Inc., 117 Cal. Rptr. 3d 398, 422 (Ct. App. 2011). Moreover, “[a] judgment
pursuant to a class settlement can bar [subsequent] claims based on the
allegations underlying the claims in the settled class action. This is true even
though the precluded claim was not presented, and could not have been
presented, in the class action itself.” Id. at 418 (second alteration in original)
(quoting In re Prudential Ins. Co. of Am. Sales Practice Litig., 261 F.3d 355,
366 (3d Cir. 2001)). 5
5 It appears not to be completely clear under California law whether a class action
settlement—having been approved by a court and releasing claims that could not have been
asserted in the underlying action—would be given preclusive effect because of res judicata
principles or contract principles, or both. Neither party briefed the argument that contract
principles apply to preclude the instant litigation. Compare Villacres, 117 Cal. Rptr. 3d at
585–91 (interpreting a settlement release as part of a res judicata analysis), with Villacres,
117 Cal. Rptr. 3d at 597 (Chaney, J., dissenting) (“[T]he interpretation of a release or
settlement agreement is governed by the same principles applicable to any other contractual
agreement.” (alteration in original) (quoting Gen. Motors Corp. v. Superior Court, 15 Cal.
Rptr. 2d 622, 625 (Ct. App. 1993))), and Howard, 208 F.3d at 747–48 (discussing the
preclusive effect of a settlement release in terms of contract principles and res judicata as
two alternative grounds). In any event, the conclusion that we reach below that California
law would preclude the FLSA claims at issue here would not be changed regardless of
whether a contract theory or res judicata theory is applied.
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No. 15-20711
In Lofton, California HMCs asserted causes of action under California
law based on, inter alia, the failure to pay overtime resulting from the
misclassification of HMCs. Lofton proceeded under California’s rules allowing
opt out class actions, 6 and as part of this process, the California Plaintiffs,
along with the other class members in Lofton, were sent a notice of the pending
settlement and its terms, including a clear release of their FLSA claims. The
notice also advised class members that if they did not opt out by a specific date,
they would be bound by the settlement terms. Critically, the California
Plaintiffs did not opt out. The Lofton court then granted final approval of the
settlement, finding that it “was entered in good faith and that its terms [were]
fair, reasonable and adequate.” The Lofton court further found that the
distribution of the notice of the settlement, claim form, and exclusion form
satisfied due process requirements. Under these facts, standard California
preclusion rules would bar the FLSA claims raised in the instant action unless
the FLSA creates an exception to how preclusion rules apply.
Indeed, the California Plaintiffs do not contend that the Lofton release
would not have preclusive effect against them if they now asserted other
California wage claims. Rather, the California Plaintiffs contend that FLSA
claims released as part of an opt out class action settlement can never be given
preclusive effect against absent class members (unless they opt in) because
they are not parties, or in privity with a party, with respect to the release of
FLSA claims. Under the California Plaintiffs’ reasoning, because an FLSA
collective action requires that a party opt in under 29 U.S.C. § 216(b) 7 in order
6 California’s opt out class actions are similar to those under Federal Rule of Civil
Procedure 23. See generally Cal. Civ. Proc. Code § 382; Cal. Rules of Court, rules 3.760–
3.771. In addition to these rules, when there is an “absence of California authority, California
courts may look to the Federal Rules of Civil Procedure . . . and to the federal cases
interpreting them.” Rutter Group, Cal. Prac. Guide Civ. P. Before Trial Ch. 14-B, 14:11.20.
7 Section 216(b) provides, in part, the following:
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No. 15-20711
to be bound by the collective action, they never became parties to the release
of their FLSA claims given that they did not opt in. Thus, although California
preclusion rules may apply to an opt out class action settlement that releases
other claims, FLSA claims present an exception to this rule because of
§ 216(b)’s opt in requirement, according to the California Plaintiffs. In
addition, the California Plaintiffs advance two other arguments for why the
Lofton settlement should not receive preclusive effect: (1) it is not a final
judgment because there are pending appeals in California related to the Lofton
settlement; and (2) the 233 California Plaintiffs who did not submit claim
forms in Lofton cannot be precluded because they received no payment in
exchange for the release of their claims.
1. The Lofton Settlement’s Release of FLSA Claims
We reject the California Plaintiffs’ position that, because they did not opt
into the Lofton settlement, they did not become parties to the Lofton settlement
with respect to releasing their FLSA claims. The California Plaintiffs would
not have been parties without opting in had Lofton been an FLSA collective
action. But that was not the case. Instead, Lofton asserted state causes of
action in an opt out class action, and the California Plaintiffs became parties
to the Lofton settlement because they did not opt out. Thus, they became bound
by the settlement terms, including the release of their FLSA claims.
The California Plaintiffs’ primary argument is that the FLSA creates a
special limitation to the extent that California can apply its preclusion rules to
An action to recover the liability prescribed in either of the preceding sentences
may be maintained against any employer (including a public agency) in any
Federal or State court of competent jurisdiction by any one or more employees
for and in behalf of himself or themselves and other employees similarly
situated. No 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. . . .
29 U.S.C. § 216(b).
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No. 15-20711
opt out class actions. However, the California Plaintiffs point to no authority
showing that California would treat the release of FLSA claims as part of a
judicially supervised class action settlement any differently under its
preclusion law. 8 It is true, as the California Plaintiffs note, that FLSA claims
cannot be asserted using an opt out class action procedure. See, e.g.,
LaChapelle v. Owens-Illinois, Inc., 513 F.2d 286, 288 (5th Cir. 1975) (per
curiam). But this proposition is inapposite. It takes an additional step to
conclude that the FLSA prohibits state courts from supervising and approving
an opt out class action settlement that releases FLSA claims, and this step is
not supported by § 216(b).
The California Plaintiffs and Wells Fargo point to district court opinions
reaching opposite conclusions on whether the FLSA creates an exception to
how preclusion rules should apply. Compare Lipnicki, 2014 WL 923524, at
*13–16 (holding that a class action settlement using an opt out procedure may
bar later FLSA claims), and Kuncl v. Int’l Bus. Mach. Corp., 660 F. Supp. 2d
1246, 1252–55 (N.D. Okla. 2009) (same), with Donatti v. Charter Commc’ns,
LLC, No. 11-4166, 2012 WL 5207585, at *4–6 (W.D. Mo. Oct. 22, 2012) (holding
that a class action settlement that proceeded on an opt out basis could not
preclude later FLSA claims). For the reasons discussed above, we disagree
with Donatti’s holding that the FLSA created an exception to how preclusion
rules would otherwise apply. Rather, we agree with Lipnicki’s reasoning that
the FLSA did not create a special exception to the enforceability of judicially
8 We note that a California appellate court reached the opposite conclusion, holding
that a settlement could validly release FLSA claims as part of an opt out class action. Keeler
v. AIG Domestic Claims, Inc., No. B226691, 2011 WL 6318485, at *13–15 (Cal. Ct. App. Dec.
19, 2011) (unpublished). However, Keeler is unpublished, and therefore, it could not be relied
on in California for determining whether California would treat the release of FLSA claims
as valid. See Cal. Rules of Court, rule 8.1115(a). That being said, we reach the same
conclusion.
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No. 15-20711
approved settlement agreements. 2014 WL 923524, at *14–15. Similar to the
prior settlement in Lipnicki, the Lofton settlement “was negotiated by class
counsel, who had a duty to represent the interest of all class members, and
approved by a court after a fairness hearing.” Id. at *14. The position that an
FLSA claim can only be resolved in a state court if it is actually asserted as a
cause of action is undermined by the fact that this court has allowed FLSA
claims to proceed through arbitration or to be settled privately under certain
circumstances. See Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294,
297–98 (5th Cir. 2004) (arbitration); Martin, 688 F.3d at 253–57 (private
settlement); see also Lipnicki, 2014 WL 923524, at *14 (“And the idea that
there is something unique about the FLSA that requires its rights to be
enforced only in a federal court is further undermined by the arbitrability of
FLSA claims.”).
The California Plaintiffs also point to a line of unpublished district court
cases that reject the release of FLSA claims as part of an opt out class action
settlement. See, e.g., Stokes v. Interline Brands, Inc., No. 12-cv-05527, 2014
WL 5826335, at *4 (N.D. Cal. Nov. 10, 2014). We again agree with Lipnicki’s
reasoning that “[t]hose courts may well have taken the wise approach in
exercising their discretion to determine the proper scope of the settlements in
those particular cases, but such decisions do little to help with the problem
here: how to apply a broad release in an opt-out class that a court has already
approved and upon which parties have relied?” Lipnicki, 2014 WL 923524, at
*16. To the extent that these cases can be interpreted for the proposition that
the FLSA provides an absolute bar to the release of FLSA claims in a judicially
supervised class action settlement using an opt out procedure, we disagree. As
discussed above, the FLSA does not create a special exception that prohibits
the enforcement of settlement agreements that release FLSA claims as part of
an opt out class action.
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No. 15-20711
2. Finality of the Lofton Settlement
The California Plaintiffs also argue that the Lofton settlement is not a
final judgment under res judicata principles because there are issues currently
on appeal in California state court, including the denial of a motion to vacate.
Under California law, “the finality required to invoke the preclusive bar of res
judicata is not achieved until an appeal from the trial court judgment has been
exhausted or the time to appeal has expired.” Franklin & Franklin v. 7-Eleven
Owners for Fair Franchising, 102 Cal. Rptr. 2d 770, 774 (Ct. App. 2000). The
California Plaintiffs reason that the Lofton judgment is not final because an
appeal is currently pending that could vacate the judgment. However, the
relevant appeal for preclusion purposes would have been an appeal from the
judgment entering the Lofton settlement, which did not occur. Thus, the
Lofton settlement became a final judgment in 2011 when the time to appeal
expired. The possibility that some later action may be taken to vacate or affect
that judgment after the time to appeal has expired does not alter its finality.
See 7 Witkin, Cal. Proc. Judgm. § 364 (5th ed. 2008) (“A judgment may be final
although subject to future modification.”).
3. The 233 California Plaintiffs Who Did Not File Claim Forms
The 233 California Plaintiffs who did not file claim forms—and therefore,
did not receive any portion of the Lofton settlement—cannot avoid the
preclusive effect of their failure to opt out of the Lofton settlement simply
because they did not receive a payment. The California Plaintiffs’ reliance on
Bodle v. TXL Mortgage Corp., 788 F.3d 159 (5th Cir. 2015), is unavailing
because that case does not stand for the proposition that a class member in a
prior settlement who failed to return a claim form can avoid the preclusive
effects of the settlement as if that class member had opted out. The Lofton
settlement retains its preclusive effect even for the 233 California Plaintiffs
who did not receive a payment from the Lofton settlement.
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No. 15-20711
In sum, the FLSA does not create an exception to how California
preclusion law would treat the enforcement of an opt out class action
settlement, and the Lofton settlement was a final judgment for preclusion
purposes. Thus, we conclude that the California Plaintiffs’ FLSA claims in the
instant appeal would be precluded by the Lofton settlement under California
law. 9
B. The FLSA Does Not Create an Exception to § 1738
Because California would give preclusive effect to the Lofton settlement,
we turn to the second inquiry under Matsushita: whether the FLSA creates an
exception to the Full Faith and Credit Act, 28 U.S.C. § 1738, such that
preclusive effect should not be granted here. Similar to the federal statute at
issue in Matsushita, the FLSA does not contain “express language regarding
its relationship with § 1738 or the preclusive effect of related state court
proceedings.” Matsushita, 516 U.S. at 380. Therefore, we must determine
whether the FLSA creates an implied exception to § 1738 because there is an
“irreconcilable conflict” between the two statutes, see id. (quoting Kremer v.
Chem. Constr. Corp., 456 U.S. 461, 468 (1982)), while keeping in mind that the
Supreme Court has “seldom, if ever, held that a federal statute impliedly
repealed § 1738,” id.
The California Plaintiffs also contend that the release of their FLSA claims was not
9
sufficiently scrutinized by the Lofton court for fairness and that this issue should prevent
preclusive effect. However, the Lofton court specifically found that the settlement was “fair,
reasonable and adequate,” and the settlement contained a clear release of FLSA claims. To
the extent that the California Plaintiffs are stating that this court should reconsider the
merits of the Lofton court’s determination that the settlement was fair, whether because of a
supposed due process or FLSA requirement, we do not agree that a court on collateral review
should do so. Bodle and Martin are inapposite because those cases involved the review of
private settlements, not the collateral review of a judicially approved class action settlement.
See Bodle, 788 F.3d at 162–65; Martin, 688 F.3d at 253–57. In contrast, the Lofton settlement
included an explicit release of FLSA claims and was judicially supervised and approved as
fair.
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No. 15-20711
Here, we conclude that the FLSA does not create an implied exception to
§ 1738. There is no irreconcilable conflict between allowing preclusive effect to
a class action settlement that released FLSA claims and the FLSA’s mandate
under § 216(b) that FLSA claims cannot be asserted using an opt out class
action. The Lofton class action did not assert FLSA claims, and therefore, did
not violate § 216(b).
Contrary to the California Plaintiffs’ position, Matsushita supports the
conclusion that the FLSA does not create an implied exception to § 1738. In
Matsushita, the Supreme Court held that, under § 1738, a federal court action
was precluded by a state court settlement even though the state court
settlement released claims that could only be asserted in federal courts. Id. at
370, 380–86. Similar to the federal statute in Matsushita, § 216(b) does not
“evince any intent to prevent litigants in state court—whether suing as
individuals or as part of a class—from voluntarily releasing” FLSA “claims in
judicially approved settlements.” See id. at 381. Indeed, § 216(b) even gives
state courts concurrent jurisdiction over FLSA claims. The fact that FLSA
claims can be released, and therefore precluded, by the settlement of an opt
out class action in state court does not conflict with § 216(b)’s requirement that
such claims only be asserted on an opt in basis.
IV. DUE PROCESS
The California Plaintiffs also argue that, even if the Lofton settlement
could preclude an FLSA claim, summary judgment is improper because there
are issues of fact regarding whether the Lofton settlement satisfied due
process. According to the California Plaintiffs, there are two due process issues
prohibiting summary judgment: (1) there was inadequate representation
because of the improprieties committed by ILG and class counsel’s response;
and (2) the notice sent to class members was inadequate. Neither of these is
sufficient to find a due process violation.
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No. 15-20711
The general rule is that “a judgment in a class action will bind the absent
members of the class,” but there is an exception: “Due process of law would be
violated for the judgment in a class suit to be res judicata to the absent
members of a class unless the court applying res judicata can conclude that the
class was adequately represented in the first suit.” Gonzales v. Cassidy, 474
F.2d 67, 74 (5th Cir. 1973); see also Hunter v. Transamerica Life Ins., 498 F.
App’x 430, 435 (5th Cir. 2012) (per curiam). We have previously employed a
two-prong inquiry in examining adequate representation on a collateral attack:
“(1) Did the trial court in the first suit correctly determine, initially, that the
representative would adequately represent the class? and (2) Does it appear,
after the termination of the suit, that the class representative adequately
protected the interest of the class?” Gonzales, 474 F.2d at 72.
While the first inquiry looks at the trial court’s decision to allow the class
action to proceed with the prior named plaintiff as the class representative, the
second inquiry “involves a review of the class representative’s conduct of the
entire suit—an inquiry which is not required to be made by the trial court but
which is appropriate in a collateral attack on the judgment such as we have
here.” Id. Regarding the second inquiry, the “primary criterion for
determining whether the class representative has adequately represented his
class for purpose of res judicata is whether the representative, through
qualified counsel, vigorously and tenaciously protected the interests of the
class.” Id. at 75.
In Gonzales, the class representative, who had received retroactive relief
when none of the other class members did, failed to prosecute an appeal. Id.at 75–76. We found that failing to prosecute the appeal amounted to
inadequate representation because the interests of the class representative
and the absent class members diverged. See id. Our later cases have
highlighted the importance of whether the class representative’s and absent
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No. 15-20711
class members’ interests remained aligned and whether they received the same
relief. See Kemp v. Birmingham News Co., 608 F.2d 1049, 1054 (5th Cir. 1979)
(distinguishing Gonzales because the absent class member in Kemp “received
the same relief as all other members of the class”), overruled on other grounds
by Nilsen v. City of Moss Point, Miss., 701 F.2d 556, 560 n.4 (5th Cir. 1983) (en
banc); cf. Taylor, 553 U.S. at 900 (“A party’s representation of a nonparty is
‘adequate’ for preclusion purposes only if, at a minimum . . . [t]he interests of
the nonparty and her representative are aligned . . . .”).
The California Plaintiffs contend that the Lofton settlement fails the
second inquiry because the Lofton class counsel did not sufficiently protect the
interests of the class by taking steps to recover for the class the $6 million
payment to ILG. Under the circumstances here, there is no due process
violation. The California Plaintiffs focus much of their argument on the
alleged improprieties committed by ILG and the steps that they believe the
Lofton class counsel should have taken in response. However, ILG was not the
class counsel, and there is no evidence or allegation that the Lofton class
representative or class counsel received a benefit from ILG’s actions separate
from the rest of the class.
At most, the evidence could be interpreted as showing that the Lofton
class counsel should have done more to notify the Lofton court during the
settlement process that ILG’s clients were not opting out of the settlement and
instead submitting claim forms. By doing so and advocating that the $6 million
should be disbursed to the class, Lofton class counsel may have been able to
recover a portion, if not all, of the $6 million for the class as part of the
settlement. 10 However, under the circumstances of this case, this does not
The district court “agree[d] with the plaintiffs that the interests of the class could
10
have been better served if class counsel had alerted the court to the fact the ILG class
members never opted out as soon as they learned about it” and that it appeared from a court
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No. 15-20711
establish a due process violation for inadequate representation because the
interests of the class representative and absent class members remained
aligned throughout the litigation. To the extent that the California Plaintiffs
suggest that this court should review the Lofton class counsel’s decisions—even
though class counsel’s and the class representative’s interests did not diverge
from those of the other class members—to determine whether class counsel
may have been able to recover some of the $6 million in the settlement process
for the class had he taken a different action, we decline to do so on a collateral
review here. The issue of whether the $6 million payment to ILG should be
disbursed to the class is already being litigated and determined (on appeal
now) by California courts.
Second, the notice sent to Lofton class members was not constitutionally
deficient. The notice specifically referenced the release of any claims existing
under the FLSA. Contrary to the California Plaintiffs’ arguments, the release
section in the notice was not unreasonable “legalese boilerplate” or “cryptic.”
Rather, the notice was clear and sufficient to apprise class members that the
settlement included the release of FLSA claims. See Phillips Petroleum Co. v.
Shutts, 472 U.S. 797, 812 (1985) (“The notice must be the best practicable,
‘reasonably calculated, under all the circumstances, to apprise interested
parties of the pendency of the action and afford them an opportunity to present
their objections.’ The notice should describe the action and the plaintiffs’ rights
in it.” (citations omitted) (quoting Mullane v. Central Hanover Bank & Tr. Co.,
339 U.S. 306, 314–15 (1950))). Furthermore, we reject the California Plaintiffs’
argument that the notice was constitutionally deficient merely because the
accompanying claim form did not repeat the released claims.
hearing transcript that “class counsel could have more zealously advocated with regard to
the class’s interest in the ILG funds.” However, the district court also noted that Wells Fargo
had provided the court with an affidavit from the Lofton class counsel explaining his actions.
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No. 15-20711
V. CONCLUSION
For the foregoing reasons, the judgment of the district court is
AFFIRMED.
21