Against Successor Entity
Network, 2014 U.S. App. LEXIS 6150
(3d Cir. April 3, 2014), the Third Circuit
Court of Appeals, in a precedential
decision, joined the U.S. Courts of
Appeals for the Seventh and Ninth
Circuits and applied the federal common
law standard to evaluate whether the
plaintiff sufficiently pleaded a Fair
Labor Standards Act (FLSA) successor
liability claim against the company that
purchased her now defunct employer.
Applying this standard, the Third Circuit
upheld plaintiff's FLSA claims against the
successor entity.
was hired as a mortgage underwriter by
defendant Security Atlantic Mortgage
Company ("Security Atlantic"). Shortly
thereafter, however, she was assigned to
a training class led by a representative
for a different mortgage company,
defendant Real Estate Mortgage Network
(REMN). That employee "represented
Security Atlantic." In February 2010,
allegedly in response to an investigation
being conducted by the U.S. Department
of Housing and Urban Development
(HUD) into Security Atlantic's mortgage
practices, Thompson and many of her
colleagues were asked by supervisors
to fill out new job applications to work
for REMN. Thompson completed the
application as requested. From roughly
that date forward, Thompson's paychecks
were issued by REMN. Defendants
characterized Security Atlantic, which
is no longer in business, as "defunct."
Despite Thompson's transfer to REMN,
virtually no change occurred in on-site
operations. Thompson and her colleagues
continued to do the same work at the same
location. Thompson's pay rate and direct
supervisors remained the same. Thompson
alleges that no employees were laid off
during this transition, although some
of her colleagues continued to receive
paychecks from Security Atlantic.
Thompson quit in August 2010, not
long after Security Atlantic's Executive
did not pay overtime to underwriters. She
filed a lawsuit claiming that throughout
her tenure with Security Atlantic and
REMN, employees were treated as
salaried workers exempt from overtime
pay and were required to work more than
40 hours per week, including nights
and weekends. In addition, Thompson
sought to hold REMN liable for Security
Atlantic's own statutory violations under
theories of joint liability and successor
liability.
Circuit in evaluating whether Thompson
sufficiently plead her claims against
either defendant was whether REMN,
as an alleged successor to Security
Atlantic, could be held liable for any
wage-and-hour violations committed by
its predecessor. In determining that issue
of first impression, the Third Circuit
examined whether the New Jersey state
law test for successor liability applied
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