Court: District Court, N.D. Illinois; March 1, 2012; Federal District Court
Hector De La Riva, Ross Perlmutter, Ted Vernon, and Brock Milligan filed a lawsuit in Cook County against Houlihan Smith Company, Inc., and its executives for violations of the Fair Labor Standards Act (FLSA) and the Illinois Minimum Wage Law (IMWL). The case was removed to federal court, where jurisdiction was established for the FLSA claims and supplemental jurisdiction for the IMWL claims. The court later considered whether to relinquish jurisdiction over the IMWL claims. Following the removal, the plaintiffs amended their complaint to include additional FLSA plaintiffs and sought to prevent asset dissipation by Houlihan Smith, though they later withdrew this motion without prejudice. Vernon dismissed his claims, leaving De La Riva and Perlmutter as the remaining IMWL plaintiffs, who sought class certification under Federal Rule of Civil Procedure 23. Notably, they chose not to pursue conditional certification for an FLSA collective action. The individual defendants moved to dismiss the IMWL claims, arguing the amended complaint did not establish personal liability. De La Riva withdrew as a proposed class representative, and several plaintiffs voluntarily dismissed their claims. Currently, Perlmutter and De La Riva are the last plaintiffs, with Perlmutter as the sole proposed representative for a putative IMWL class of 244 Houlihan Smith employees alleging unpaid minimum wage and overtime violations. The motion for class certification is fully briefed, with indications that the case for certification is substantial.
The individual defendants' motion to dismiss the Illinois Minimum Wage Law (IMWL) claims has been fully briefed. Due to Houlihan Smith's financial difficulties, a ruling in favor of the class would hold little value if the individual defendants are not held personally liable under IMWL. The court has original jurisdiction over Fair Labor Standards Act (FLSA) claims, and the IMWL claims fall under its supplemental jurisdiction per 28 U.S.C. § 1367(a). The court must decide whether to exercise discretion under § 1367(c) to relinquish jurisdiction over the state law claims. This section allows district courts to decline supplemental jurisdiction if the claim raises novel state law issues, predominates over original claims, all original claims are dismissed, or if there are compelling reasons to decline jurisdiction.
The question of retaining or relinquishing supplemental jurisdiction can be revisited throughout the litigation. Subsection (e)(3) does not apply as the defendants still have FLSA claims. Remand is justified under both subsections (c)(1) and (c)(2), with the latter permitting decline of jurisdiction if state law claims substantially predominate over federal claims. The Seventh Circuit's decision in Ervin v. OS Restaurant Services examined whether state law claims predominated in cases involving both FLSA and IMWL claims. The district court noted a significant difference in class sizes, but the Seventh Circuit ruled that mere numerical disparity does not suffice to establish that state law claims "substantially predominate" over FLSA claims under § 1367(c). Predomination relates more to the type of claims than the number of parties involved. While acknowledging scenarios where a state-law class might overwhelm a federal action, the court concluded that the disparity in this case—approximately 30 FLSA participants versus potentially 180 to 250 state-law participants—was insufficient to alter the supplemental jurisdiction assessment. Maintaining a single forum for similar issues enhances judicial efficiency.
The case at hand is contrasted with De Asencio, which involved a large FLSA collective action and a significant IMWL class action. The Seventh Circuit's analysis indicates that while a disparity in numbers between FLSA opt-in plaintiffs and IMWL class members typically does not establish substantial predominance under subsection (c)(2), exceptions exist. The use of "generally" suggests that while most cases may not meet this threshold, there are instances where a substantial discrepancy could be significant. This case features a 122:1 disparity (244 IMWL members to 2 FLSA opt-in plaintiffs), which is markedly greater than the lesser disparity noted in De Asencio and exceeds the threshold discussed in Ervin. Additionally, the absence of a collective FLSA action, with potentially only one remaining individual claim depending on the outcome of a pending motion, further underscores the distinct circumstances. The Fifth Circuit in Mims v. Stewart Title Guaranty Co. recognized that a disparity between state law class actions and individual federal claims could establish substantial predominance. Ervin aligns with this perspective, suggesting that a significant disparity between an IMWL class action and an individual FLSA action is even more impactful. The RICO claims from the four individual plaintiffs are deemed minor compared to the class-wide relief available under state consumer protection laws, indicating that the Court should refrain from extending federal jurisdiction in this instance under subsection (c)(2).
An IMWL class action differs qualitatively from an FLSA individual action. Damages for plaintiffs Perlmutter and De La Riva, if they succeed in proving liability under the FLSA and/or IMWL, will be determined at trial, while damages for absent IMWL class members will be addressed in post-trial proceedings. Individualized damages issues do not inherently preclude class certification under Rule 23, as established in Messner v. Northshore Univ. Health Sys. and Carnegie v. Household Int’l, Inc., provided that substantial common issues exist. However, these individualized damages considerations may complicate post-trial proceedings focused solely on IMWL claims, as there are no absent FLSA opt-in plaintiffs. The court must assess substantial predominance based on proof, issue scope, and remedy comprehensiveness, with the potential for extensive post-trial proceedings favoring a determination of substantial predominance. Remand of IMWL claims is warranted under 28 U.S.C. 1367(c)(1) due to the novel state law issues raised. The personal liability of the individual defendants—Houlihan, Smith, and Botchway—under the IMWL is a central issue, hinging on whether they qualify as "employers" under the statute. This determination is crucial, as it affects their potential liability for failing to pay minimum wage and overtime as required by the IMWL. The plaintiffs argue that the "economic reality" test used in FLSA cases should govern this assessment, though no Illinois court has yet addressed the personal liability of company officials under the IMWL.
The individual defendants argue that personal liability under the Illinois Wage Payment and Collection Act (IWPCA) should be assessed using the "knowingly permit" test, which has been endorsed by Illinois courts, as opposed to the "economic reality" test. The differences between these tests are largely factual, with the "economic reality" test being easier to satisfy. Plaintiffs reference Illinois courts' tendency to utilize Fair Labor Standards Act (FLSA) regulations as persuasive authority when interpreting the Illinois Minimum Wage Law (IMWL), while the defendants highlight the principle of borrowing provisions from related statutes to resolve ambiguities. The text emphasizes that both the IMWL and IWPCA address similar topics and share an underlying public policy beneficial to Illinois workers and taxpayers. There is uncertainty whether Illinois courts would adopt the "economic reality" test or the "knowingly permit" test for IMWL personal liability. Certification to the Illinois Supreme Court is not an option, which leads to the conclusion that the complex state law question warrants relinquishing jurisdiction over the IMWL claims under 28 U.S.C. 1367(c)(1).
The court affirmed the dismissal without prejudice of state law claims due to unresolved issues in state law, referencing cases such as Williams Elecs. Games, Inc. v. Garrity and De Asencio. Specifically, it noted unsettled questions regarding the Pennsylvania wage-and-hour statute and Illinois Day and Temporary Labor Service Act, leading to the district court's abuse of discretion in declining to relinquish jurisdiction over state claims.
The defendants' notice of removal claimed jurisdiction over the Illinois Minimum Wage Law (IMWL) claims under the Class Action Fairness Act (CAFA), which would require mandatory jurisdiction. However, in court, defendants retracted this claim, stating it was made "inadvertently," indicating that the proper basis for jurisdiction was actually 28 U.S.C. 1367(a). The plaintiffs also did not argue for CAFA as a jurisdictional basis and acknowledged that their class was seeking less than the $5 million threshold required by CAFA.
Despite recognizing potential efficiencies in handling FLSA and IMWL claims together, the court ultimately decided to exercise its discretion to relinquish supplemental jurisdiction over the IMWL claims, remanding them to the Circuit Court of Cook County. The plaintiffs, Perlmutter and De La Riva, retain the option to pursue their individual FLSA claims in federal court, subject to any defenses.
