Lopez v. Nights of Cabiria, LLC

• Decision Date: 30 March 2015
• Docket Number: No. 14–cv–1274 LAK.,14–cv–1274 LAK.
• Citation: 96 F.Supp.3d 170
• Parties: Fermin LOPEZ, et al., Plaintiffs, v. NIGHTS OF CABIRIA, LLC, etc., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

96 F.Supp.3d 170

Fermin LOPEZ, et al., Plaintiffs

v.NIGHTS OF CABIRIA, LLC, etc., et al., Defendants.

No. 14–cv–1274 LAK.

United States District Court, S.D. New York.

Signed March 30, 2015.

Michael Antonio Faillace, Michael Faillace & Associates, P.C., for Plaintiffs.

Alexander Wilde Leonard, Carolyn Diane Richmond, Fox Rothschild, LLP (NYC), for Defendants.

MEMORANDUM OPINION

LEWIS A. KAPLAN, District Judge.

The three named plaintiffs in this case—Fermin Lopez, Cesar Melo, and Armando Ajtun—were employed as tipped delivery workers¹ at defendants' restaurant, which operated as “Two Boots Pizza,” in the East Village.² Notwithstanding their designation as tipped delivery workers, plaintiffs allege that they spent a “considerable part of their work day” performing non-tipped, non-delivery duties without due compensation.³ They bring this suit to enforce their alleged rights under the Fair Labor Standards Act (“FLSA”)⁴ and the New York Labor Law (“NYLL”).⁵ Plaintiffs claim principally that defendants failed to pay their requisite minimum and overtime wages, that they did not receive “spread of hours” pay as required by the NYLL,⁶ and that they were compensated improperly at the “tip credit” rate in light of their allegedly substantial non-tipped duties.⁷ The suit purports to be a collective action under the FLSA and a class action under state law,⁸ although no request for class certification or collective action status has been made. The matter is now before the Court on the parties' joint request for approval of a proposed settlement.⁹

The Proposed Settlement

The proposed settlement agreement (the “Agreement”) would discontinue the case in exchange for a payment of $27,500.¹⁰ Plaintiffs' counsel would retain either $11,000 or $12,000 as its fee, the precise amount being unclear because counsel's submission refers to two different fee amounts on successive pages.¹¹ Whichever figure is correct, counsel's proposed fee is between 40 and 43.6 percent of the total settlement payment. Of the remaining settlement funds, $2,000 would “be paid directly to the Plaintiffs as wages, while the remainder of the settlement amount will be paid by check to Plaintiffs' attorneys,” who would then “distribute $14,500 of that additional amount to the Plaintiffs themselves.”¹²

Plaintiff's counsel estimates that if plaintiffs had proceeded to trial, their maximum recovery would have been $49,000, “including liquidated damages, and not including a potential attorneys' fees award,” and that “[a]pproximately $12,000 of that sum represents unpaid minimum and overtime wages.”¹³ Plaintiffs therefore stand to receive $16,500 from the proposed settlement, or approximately 33.7 percent of their alleged $49,000 maximum recovery.

The parties assert that the Agreement is “fair, reasonable, adequate, and in the Parties' mutual best interests.”¹⁴ The Court is told that “there were sharply contested factual and legal disputes,” including “a dispute over whether or not the Defendants were allowed to pay Plaintiffs at a lower tip-credit rate” and “disputes over the number of hours Plaintiffs worked each week, and the duration of their employment.”¹⁵ Defendants claim that, under their calculations, plaintiffs are entitled to no more than $8,000 in wage and overtime payments and no more than $25,000 in total damages.¹⁶ These estimates differ from plaintiffs' calculations by $4,000 and $24,000, respectively. The parties state that the proposed settlement emerged from “arduous arms-length bargaining”¹⁷ and vigorous contestation of various factual disputes.

For reasons that will appear, several specific provisions of the Agreement are relevant to the Court's decision whether to approve it.

First, the Agreement contains a number of confidentiality provisions. One would bar the plaintiffs from discussing the settlement with anyone except their “immediate family members, financial advisors and attorneys.”¹⁸ Another provision—a gag order, really—states that plaintiffs “shall not directly or indirectly encourage, solicit, or support third party, person or entity ... with respect to any litigation, arbitration, and/or civil action in which Defendants could be implicated or discussed in any way, unless pursuant to subpoena or other compulsory legal process.”¹⁹ A similar provision states that plaintiffs and defendants have agreed that, if asked about the status of the pending action or the Agreement, they are to respond “solely by stating that ‘The Parties' dispute has been amicably resolved.’ ”²⁰ The Agreement additionally contains a non-disparagement clause, stating that plaintiffs “will not make any negative statement about the Defendants, or otherwise disparage them, nor will they encourage or direct others to do so.”²¹

To enforce these confidentiality terms, the Agreement contains a liquidated damages provision. Under this section, defendants can seek “specific performance and injunctive or other equitable relief” for violations of the Agreement's confidentiality and non-disparagement obligations.²² Further, in the event of a “judicial determination”that plaintiffs have violated those obligations, plaintiffs are to pay liquidated damages in the amount of $3,000, plus defendants' attorneys' fees.²³

Second, the Agreement contains a series of broad releases. In exchange for the $16,500 settlement payment, the named plaintiffs, under the proposed Agreement, would waive all claims “of any kind whatsoever, at law or in equity, direct or indirect, known or unknown, discovered or undiscovered, which they had, now have or hereafter can, shall or may have against Defendants.”²⁴ The waiver would encompass all matters “from the beginning of the world to the effective date of this Agreement.”²⁵ Moreover, instead of covering only wage-and-hour claims or matters relating to the instant suit, the releases would cover

“any other claim, whether for monies owed, reimbursement, attorneys' fees, litigation costs, damages, torts, intentional infliction of emotional distress, negligence, promissory estoppel, breach of contract, breach of an implied covenant of good faith and fair dealing, constructive discharge, wrongful discharge, defamation, fraud, misrepresentation, or otherwise, arising prior to or at the time of the execution of the Agreement.”²⁶

Discussion

I. The Legal Standards Governing Proposed FLSA Settlements

The FLSA places “strict limits on an employee's ability to waive claims for unpaid wages or overtime under 29 U.S.C. § 216 for fear that employers would coerce employees into settlement and waiver.”²⁷ The Supreme Court, however, has indicated “that employees may waive FLSA claims pursuant to judicially-supervised settlements.”²⁸

Some disagreement has arisen among district courts in this circuit as to whether such settlements do in fact require court approval, or may be consummated as a matter of right under Rule 41.²⁹ The trend among district courts is nonetheless to continue subjecting FLSA settlements to judicial scrutiny.³⁰ This Court sees no reason at present to deviate from the traditional practice, particularly as the parties have “have requested judicial approval” in this case.³¹

District courts must evaluate whether a proposed FLSA settlement is “fair and reasonable” and whether any proposed award of attorneys' fees is reasonable.³² Such scrutiny is especially important in light of the recent explosion in FLSA litigation. According to one estimate, FLSA filings have increased some 400 percent nationwide since 2001 and now comprise nearly nine percent of all new civil cases in this district.³³ In such circumstances, courts must remain alert to the risk that the filing and settling of FLSA cases has become a volume-based business and that “the interest of plaintiffs' counsel in counsel's own compensation will adversely affect the extent of the relief counsel will procure for the clients.”³⁴

In determining whether to approve a proposed FLSA settlement, relevant factors include

“(1) the plaintiff's range of possible recovery; (2) the extent to which the settlement will enable the parties to avoid anticipated burdens and expenses in establishing their respective claims and defenses; (3) the seriousness of the litigation risks faced by the parties; (4) whether the settlement agreement is the product of arm's-length bargaining between experienced counsel; and (5) the possibility of fraud or collusion.”³⁵

Factors that weigh against settlement approval include

“(1) the presence of other employees situated similarly to the claimant; (2) a likelihood that the claimant's circumstance will recur; (3) a history of FLSA non-compliance by the same employer or others in the same industry or geographic region; and (4) the desirability of a mature record and a pointed determination of the governing factual or legal issue to further the development of the law either in general or in an industry or in a workplace.”³⁶

Examination of whether a proposed FLSA settlement is fair and reasonable, therefore, is an information intensive undertaking. At a minimum, the Court requires evidence as to the nature of plaintiffs' claims, the bona fides of the litigation and negotiation process, the employers' potential exposure both to plaintiffs and to any putative class, the bases of estimates of plaintiffs' maximum possible recovery, the probability of plaintiffs' success on the merits, and evidence supporting any requested fee award.

II. The Court Will Not Approve the Proposed Settlement in Its Current Form

A. The Parties Have Not Provided the Court with All Necessary Information

The parties have not “provide[d] the Court with each party's estimate of the number of hours worked or the applicable wage.”³⁷ The Court therefore has no sense of how the parties' counsel arrived at the opposing maximum recovery figures of $25,000 and $49,000, nor to what extent resolution of the various factual disputes cited in the parties' submission in either side's favor would alter those figures. The parties' submission...