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Hector De La Riva, Ross Perlmutter, and Ted v. Houlihan Smith & Company

March 2, 2012

HECTOR DE LA RIVA, ROSS PERLMUTTER, AND TED VERNON, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, AND BROCK MILLIGAN, CHARLES J. BACHMANN, AND ROBERT BECKER, INDIVIDUALLY,
PLAINTIFFS,
v.
HOULIHAN SMITH & COMPANY, INC., RICHARD HOULIHAN, ANDREW D. SMITH, AND CHARLES BOTCHWAY, DEFENDANTS.



The opinion of the court was delivered by: Judge Feinerman

MEMORANDUM OPINION AND ORDER

Hector De La Riva, Ross Perlmutter, Ted Vernon, and Brock Milligan brought this lawsuit in the Circuit Court of Cook County against Houlihan Smith & Company, Inc., Richard Houlihan, Andrew Smith, and Charles Botchway, alleging violations of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq., and the Illinois Minimum Wage Law ("IMWL"), 820 ILCS 105/1 et seq. Doc. 1 at 6-20. All four plaintiffs sued under the FLSA, while all but Milligan sued under the IMWL. Defendants removed the case to federal court. Id. at 1-4. The removal was proper, with 28 U.S.C. § 1441 providing federal question jurisdiction over the FLSA claims and 28 U.S.C. § 1367(a) providing supplemental jurisdiction over the IMWL claims. See Ervin v. OS Rest. Servs., Inc., 632 F.3d 971, 979 (7th Cir. 2011). Events occurring since removal led the court to ask whether it should exercise its discretion under 28 U.S.C. § 1367(c) to relinquish jurisdiction over the IMWL claims. Doc. 66. Plaintiffs and Botchway filed briefs on the issue. Docs. 67, 68. For the following reasons, the court relinquishes jurisdiction over the IMWL claims and remands them to state court.

Shortly after removal, Plaintiffs sought and received leave to file an amended complaint adding Charles Bachmann and Robert Becker as FLSA plaintiffs. Docs. 12, 13. Months later, Plaintiffs moved the court to enjoin Houlihan Smith (the entity defendant) from dissipating its assets. Doc. 30. From the motion itself and counsels' arguments in open court, it became apparent that Houlihan Smith likely would not have the assets necessary to satisfy a judgment if Plaintiffs prevailed on behalf of themselves and their fellow Houlihan Smith employees. This is why Plaintiffs sued not just Houlihan Smith, but also Houlihan, Smith, and Botchway, who according to the amended complaint are involved in the company's management, and who might possibly provide three additional pockets from which a large judgment could be paid. Doc. 12 at ¶¶ 5-8. Plaintiffs ultimately withdrew their motion to enjoin the alleged dissipation of the entity's assets, though without prejudice to reinstatement. Doc. 39.

The case's contours then began to crystalize. Vernon voluntarily dismissed his claims and exited the litigation. Docs. 40, 44. The two remaining IMWL plaintiffs, De La Riva and Perlmutter, moved under Federal Rule of Civil Procedure 23 to certify a class to pursue the IMWL claims. Doc. 42. Unlike the course pursued by plaintiffs and their counsel in other wage-and-hour suits, Plaintiffs did not also move under 29 U.S.C. § 216(b) to conditionally certify an FLSA collective action. This was no oversight; Plaintiffs have confirmed in open court that they will not seek to certify an FLSA collective action. The individual defendants then moved under Rule 12(c) to dismiss the IMWL claims against them, arguing that the amended complaint's allegations do not plausibly establish a basis for personal liability under the IMWL. Doc. 49.

The same day, De La Riva sought and received leave to cease being a proposed class representative. Docs. 52, 55. Bachmann, Becker, and Milligan then voluntarily dismissed their claims and exited the litigation. Docs. 62, 66. Finally, Houlihan Smith, Houlihan, and Smith moved to dismiss De La Riva's claims pursuant to a settlement agreement he purportedly executed late last year, apparently without his counsel's knowledge. Docs. 64, 70.

The case now stands in the following posture. Perlmutter and De La Riva are the sole remaining plaintiffs. Both have individual claims under the FLSA and the IMWL, and Perlmutter is the sole proposed representative of the putative IMWL class. Perlmutter's motion to certify an IMWL class is fully briefed. The putative class consists of 244 Houlihan Smith employees who allegedly did not receive the minimum hourly wage for all time worked and/or overtime pay for time worked in excess of forty hours per week. Doc. 42 at 5. While no ruling, definitive or otherwise, is made, a review of the briefs shows the case for class certification to be not insubstantial. The individual defendants' motion to dismiss the IMWL claims is fully briefed. Given Houlihan Smith's poor financial condition, if the individual defendants escape personal IMWL liability either on a motion or at trial, there would be little if any practical value to a judgment in the class's favor, assuming one is certified.

As noted above, with original jurisdiction secure due to the FLSA claims, the IMWL claims fall within the court's supplemental jurisdiction under § 1367(a). The question here is whether the court should exercise its discretion under § 1367(c) to relinquish jurisdiction over the state law claims. Section 1367(c) provides:

The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if-

(1) the claim raises a novel or complex issue of State law,

(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction,

(3) the district court has dismissed all claims over which it has original jurisdiction, or

(4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction.

28 U.S.C. § 1367(c). The question whether to retain or relinquish supplemental jurisdiction over state law claims remains open "at every stage of the litigation." City of Chi. v. Int'l Coll. of Surgeons, 522 U.S. 156, 173 (1997) (internal quotation marks omitted). Subsection (c)(3) does not apply here because De La Riva and Perlmutter still have their FLSA claims. Remand is warranted, however, under both subsection (c)(2) and subsection (c)(1).

Subsection (c)(2) permits a court to decline supplemental jurisdiction if a lawsuit's state law claims "substantially predominate" over its federal claims. The Seventh Circuit recently considered in Ervin v. OS Restaurant Services, supra, the application of subsection (c)(2) to suits that involve both FLSA and IMWL claims. The Ervin plaintiffs sought to pursue both an FLSA collective action under 29 U.S.C. ยง 216(b) and an IMWL class action under Rule 23(b)(3). 632 F.3d at 973. The district court "concluded that the difference in size between the larger state-law class and the smaller FLSA collective action made a difference" under subsection (c)(2). Id. at 980. On the facts presented, the Seventh Circuit disagreed, holding that ...


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