Third Circuit Reverses Denial of Class Certification: Holds Ascertainability Satisfied Even with Gaps in Records

On September 9, 2020, a split panel of the Third Circuit issued a precedential opinion in Hargrove v. Sleepy’s LLC, reversing the denial of class certification because the district court “misapplied” the Circuit’s ascertainability case law and was “too exacting” when it “essentially demanded” that plaintiffs identify the class members at the certification stage. The circuit court also determined that the district court erroneously applied the motion-for-reconsideration standard to plaintiffs’ renewed motion for class certification, and held that courts should apply “the usual Rule 23 standard.”

In Hargrove, the plaintiffs, delivery drivers, brought an employee misclassification suit alleging that defendant misclassified them as independent contractors, rather than employees, and thus violated several New Jersey labor laws. The district court denied class certification, twice, on the ground that the ascertainability requirement was not satisfied. In denying plaintiffs’ renewed motion for certification, the Court held that plaintiffs’ proposed class was “not ascertainable because the records kept by Sleepy’s regarding the identity of the drivers lacked critical information.” The plaintiffs sought leave to appeal pursuant to Rule 23(f), and the Third Circuit granted their request.

First, the circuit court addressed the split among the district courts, both in and out of the Third Circuit, on the issue of the standard that applies to renewed motions for class certification. Some courts have applied the usual Rule 23 standard, while others have applied the more onerous motion-for-reconsideration standard. The circuit court considered the plain language of Rule 23(c)(1)(C), “which allows for multiple bites at the apple throughout the litigation, and … does not impose an additional requirement on parties to prove a change in law or show new evidence to succeed on a renewed motion for certification.” Thus, the court “decline[d] to import the stringent motion-for-reconsideration standard to a renewed motion for class certification” and, instead, concluded that courts should apply the “usual Rule 23 standard.”

Next, the Third Circuit provided a thorough discussion of its ascertainability standard. Here, the court concluded that even though the records plaintiffs relied on were “incomplete,” the district court “failed to explain why, in light of our precedents, the records as a whole, together with the affidavits, did not provide a reliable and feasible mechanism to ascertain class members at the certification stage.” The record contained large samples of Sleepy’s driver rosters, gate logs, and pay statements and the “gaps in the record [did] not undermine the conclusion that all the evidence taken together could at the merits stage be used to determine who the full-time drivers were.” Thus, the court concluded that class members were “identifiable through objective criteria” and the district court “improperly focused on perceived gaps in the evidence—gaps that were plausibly created by Sleepy’s own record keeping.”

Lastly, the court found that an employer’s failure to keep records should not act as a roadblock to class certification because “[t]o hold otherwise would be in tension with the Supreme Court’s decisions in [Anderson v.] Mt. Clemens [Pottery Co.], 328 U.S. 680 [(1946)] and Tyson Foods, [Inc. v. Bouaphakeo,] ––– U.S. –––, 136 S. Ct. 1036 [(2016)], which held that employees’ wage claims should not suffer simply due to an employer’s failure to maintain employee pay records that it is required to keep by law.” Thus, the court extended the holdings of Tyson Foods and Mt. Clemens to the ascertainability determination at the class-certification stage, holding that “where an employer has failed to keep records it was required to keep by law, employees can prove ascertainability (it remains their burden) by producing ‘sufficient evidence’ to define their proposed class as ‘a matter of just and reasonable inference.’” The court rejected the argument that Sleepy’s acted in good faith when it failed to keep complete records for the proposed class members, believing they were independent contractors, not employees. The court explained that allowing the class action to be “thwarted” by Sleepy’s lack of records “would be creating an incentive for employers not to keep records and thus avoid potential lawsuits.”

The dissent disagreed with the majority’s conclusions, both procedurally and on the merits. The dissent opined that, “[c]onsistent with … long standing precedent,” the district court’s order should have been affirmed because the plaintiffs “failed to present and argue the issue of whether the Court erred in denying their renewed motion for class certification under the motion-for-reconsideration standard.” The dissenting judge further opined that the district court did not abuse its discretion in holding that plaintiffs failed to establish ascertainability. The dissent noted that plaintiffs “failed to show that the class was currently and readily ascertainable.” The dissent explained that plaintiffs “consistently presented a confusing and incomplete method for ascertaining class members, which led the Court to its holding on ascertainability.”

The Third Circuit’s decision is significant for several reasons. The court resolved a split among the district courts, holding that the correct standard applicable to renewed motions for class certification is the usual Rule 23 standard, not the “stringent” motion-for-reconsideration standard. Additionally, the court provided additional guidance on its ascertainability standard finding that gaps in employment records required to be maintained by an employer will not preclude certification, provided the plaintiff proffers “sufficient evidence” to allow for a reasonable inference “to fill an evidentiary gap created by the employer’s failure to keep adequate records.” Lastly, the court’s decision provides a warning to employers that their failure to maintain required records, even if acting in good faith, will not shield them from potential class actions.