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Trial court erred in tossing state-law wage claims on eve of federal trial based on assumed forum shopping

By Marjorie Johnson, J.D.

A federal district court erred in refusing sua sponte to exercise supplemental jurisdiction over laundromat workers’ state-law claims on the eve of trial without affording the parties notice or an opportunity to be heard. Vacating and remanding, the Second Circuit ruled that under the circumstances, which included intervening Second Circuit law, the court should have provided the plaintiffs the opportunity to explain why they were no longer pursuing their FLSA claims. Moreover, the court’s jurisdictional analysis was itself faulty and exacerbated by its unsupported belief that plaintiffs had brought their FLSA claims so they could manufacture federal jurisdiction (Lopez Catzin v. Thank You & Good Luck Corp., August 8, 2018, Barrington, P.).

Two years of litigation. The laundromat workers brought this action alleging that their New York City employers willfully violated the FLSA and New York Labor Law (NYLL) by failing to pay them the minimum wage and overtime and violating other requirements of the wage-and-hour laws. The case was litigated for nearly two years, and after discovery and resolution of the parties’ cross-motions for summary judgment, various FLSA and NYLL claims were left to be resolved at trial.

FLSA claims withdrawn. The parties filed pretrial submissions, which omitted mention of the FLSA and focused on the alleged NYLL violations. Shortly before the final pretrial conference, the plaintiffs filed a letter noting that they intended to pursue only their NYLL claims since they had concluded, based on an intervening Second Circuit clarification, that any potential recovery under the FLSA would be subsumed by the recovery available under the NYLL.

Court assumes forum shopping. Acting on its assumption that their inclusion of the FLSA claims had been a disingenuous ploy to manufacture federal jurisdiction, the district court sua sponte issued an order that deemed plaintiffs to have abandoned their federal claims. It also cancelled the next day’s pretrial conference and the trial scheduled to start the following week, revoked its exercise of supplemental jurisdiction over their state-law claims, dismissed them without prejudice, and ordered the case closed.

Parties should have been heard. The first of three interrelated errors that the district court committed was its decision to act without providing the parties notice and an opportunity to be heard. Notably, the court undisputedly possessed supplemental jurisdiction and faced only the discretionary examination of whether to discontinue that jurisdiction. Such an inquiry usually entails hearing from the parties to help reasoned decisonmaking and fairness.

Clarification in law. Here, at the time the action was commenced in 2015, there was uncertainty as to whether multiple sets of liquidated damages could be obtained under both the FLSA and NYLL for the same conduct. But in December 2016, the Second Circuit noted in a summary order that the statutes’ liquidated damages provisions were “materially identical” and thus could provide only one overlapping award of liquidated damages for the same conduct. This conclusion was later adopted as the law of the circuit in a 2018 opinion.

If given the opportunity, the plaintiffs could have explained whether this clarification in the law had impacted the case; whether they were trying to streamline the issues by not having to prove FLSA elements not required for NYLL liability; whether they intended to abandon their FLSA claims; and whether they would do so if the result would be an “11th-hour dismissal.” Moreover, insofar as the district court based its determination on its assessment that plaintiffs never actually intended to litigate their FLSA claims, allowing them to be heard might have allowed them to explain why they brought FLSA claims and litigated those claims for nearly two years.

Presumption of nefarious motive. The district court’s decision was exacerbated by its unsupported belief that plaintiffs had brought their FLSA claims so that they could manufacture federal jurisdiction. This appeared at odds with the course of the lawsuit, which had been vigorously litigated for years and involved significant discovery, dispositive motions, and a class certification motion that the plaintiffs attempted to appeal. Moreover, the court cited nothing in the record—other than the purported recent withdrawal of the FLSA claims—and made no adequate findings to support this determination. Indeed, its reasoning came “perilously close” to charging plaintiffs’ counsel with unethical behavior, which should only be done after “a careful inquiry, thorough analysis, and thoughtfully expressed findings.”

Inadequate analysis. Finally, the court’s analysis to determine whether to continue to exercise supplemental jurisdiction was itself faulty. The principle that the elimination of federal claims prior to trial generally points to declining to exercise supplemental jurisdiction “in the usual case” did not mean that the balance of the factors always points that way. Nor did the record establish that this was the “usual case,” where “judicial economy, convenience, fairness, and comity” counsel against exercising supplemental jurisdiction.

In particular, the court unilaterally revoked supplemental jurisdiction one day prior to the final pretrial conference and a week before the scheduled trial date. The trial was to be short, the parties and the district court were ready, and the case presented no issues of special state court expertise, nor any novel questions of state law. Instead, “wage-and-hour cases like this one are quotidian, and federal courts are well experienced in presiding over them.”

The record also did not “lend itself to an understanding as to how convenience or fairness was served by setting backwards the course of a case the parties had vigorously litigated for nearly two years and causing them to expend who knows how much time, legal fees, and distraction starting over in state court.” In sum, the record provided “no clarity as to how judicial economy, convenience, fairness, or comity might be served by requiring the parties to expend additional years as well as dollars re-litigating in state court.”