Carson v. Team Brown Consulting, Inc.

• Decision Date: 30 September 2017
• Docket Number: 16-cv-4206 (LDH) (RLM)
• Citation: 416 F.Supp.3d 137
• Parties: Sharieff CARSON, Plaintiff, v. TEAM BROWN CONSULTING, INC., Defendant.
• Court: U.S. District Court — Eastern District of New York

416 F.Supp.3d 137

Sharieff CARSON, Plaintiff,

v.TEAM BROWN CONSULTING, INC., Defendant.

16-cv-4206 (LDH) (RLM)

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

Signed September 30, 2017

ORDER

LASHANN DEARCY HALL, United States District Judge:

Plaintiff Sharieff Carson brings this action against Defendant Team Brown Consulting, Inc., alleging, on behalf of himself and others similarly situated, violations of the Fair Labor Standards Act ("FLSA") and New York Labor Law.

BACKGROUND

On October 13, 2016, Defendant filed a notice of settlement. (See Notice of Settlement, ECF No. 8.) On October 21, 2016, the Court directed the parties to file papers sufficient to allow a review pursuant to Cheeks v. Freeport Pancake House, Inc. , 796 F.3d 199 (2d Cir. 2015), or an executed Section 636 form consenting to magistrate judge jurisdiction, after which the magistrate judge would schedule a " Cheeks hearing." (See Oct. 21, 2016 Electronic Order.) On November 3, 2016, Defendant filed a motion for an extension of time for the parties to file their settlement agreement and stipulation of dismissal. (See Def.'s Mot. for Extension, ECF No. 10.) Therein, Defendant informed the Court that "[t]he terms of the settlement [would] be directly impacted regarding whether Cheeks approval is necessary" and inquired as to whether Cheeks approval would be required if the complaint were dismissed or withdrawn without prejudice. (See id. ) In response to Defendant's motion, on November 4, 2016, Chief Magistrate Judge Mann held a telephonic conference. (See Nov. 4, 2016 Min. Entry, ECF No. 11; Tr. Nov. 4, 2016 Proceedings ("Tr.") 2:2-17, ECF No. 15.) Following the conference, Plaintiff's counsel wrote to the Court also requesting an extension of time to file the parties' settlement agreement and stipulation of dismissal and seeking clarification as to whether Cheeks approval would be required if the action were discontinued without prejudice. (See Pl.'s Letter Response to Order and Request for Extension, ECF No. 12.)

At the request of this Court, on November 23, 2016, Magistrate Judge Mann issued a report and recommendation, wherein she recommended that a Cheeks hearing be required and that the parties' request for additional time to submit Cheeks materials be granted. (See R. & R., ECF No. 13.) Two days later, Plaintiff's counsel filed a notice of voluntary dismissal without prejudice pursuant to Rule 41(a)(1)(A)(i) of the Federal Rules of Civil Procedure ("FRCP"). (See Pl.'s Notice of Voluntary Dismissal, ECF No. 14.) Plaintiff's counsel filed a timely objection to the report and recommendation on December 12, 2016. (See Pl.'s Obj., ECF No. 16.) Defendant filed no objection. When a timely objection has been made to any portion of a report and recommendation on a dispositive matter, the District Court reviews the report and recommendation de novo . 28 U.S.C. § 636(b)(1) ; Fed. R. Civ. P. 72(b)(3). Upon review, the Court hereby adopts the report and recommendation with respect to the parties' request for clarification as to whether Cheeks review is required.

DISCUSSION

In Cheeks , the Second Circuit held that, absent judicial approval, litigants may not settle FLSA claims through a private stipulated dismissal with prejudice pursuant to Rule 41(a)(1)(A)(ii). See 796 F.3d at 200 (affirming judgment of district court and remanding for judicial review of settlement agreement). Cheeks expressly left open, however, whether judicial approval is required for FLSA settlements effected by stipulation without prejudice pursuant to Rule 41(a)(1)(A). See id. at 201 n.2.¹ Plaintiff's counsel correctly notes that courts in this district have approved dismissals without prejudice in FLSA cases absent Cheeks review. (See Pl.'s Obj. 11 (collecting cases)). Likewise, other courts in this district have conducted Cheeks reviews of such dismissals without objection from the parties. The propriety of mandating judicial review is far from settled and will ultimately be resolved by the Second Circuit. Until such time, the district court must be guided, first and foremost, by the policy considerations underlying Cheeks . In view of those policy considerations, this Court concludes that judicial review and approval should be required in this case.

"[T]he Supreme Court and [the Second Circuit] have long recognized ... [that] the FLSA's underlying purpose[ ] [is] ‘to extend the frontiers of social progress by insuring to all our able-bodied working men and women a fair day's pay for a fair day's work.’ " Cheeks , 796 F.3d at 206 (quoting A.H. Phillips, Inc. v. Walling , 324 U.S. 490, 493, 65 S.Ct. 807, 89 L.Ed. 1095 (1945) ). To that end, the Supreme Court has "consistently ... interpreted the [FLSA] liberally and afforded its protections exceptionally broad coverage." Id. (quoting Chao v. Gotham Registry, Inc. , 514 F.3d 280, 285 (2d Cir. 2008) ). Against that backdrop, the Cheeks court crafted a holding that was explicitly driven by the "unique policy considerations underlying the FLSA." Id. Of particular concern to the court was the "potential for abuse" in FLSA settlements, as exemplified by, inter alia , "overbroad release[s] that would waive practically any possible claim against the defendants" and outsized attorneys' fees provisions, some setting fees for plaintiffs' attorneys at "between 40 and 43.6 percent of the total settlement payment without adequate documentation to support such a fee award." See id. (internal quotation marks omitted) (citing Lopez v. Nights of Cabiria, LLC , 96 F. Supp. 3d 170, 173, 177, 181 (S.D.N.Y. 2015) ).

The parties in this case have largely disclosed the terms of the proposed settlement at issue. (See Tr. 8:6-17, 9:2-10:11.) As an exception, the parties "declined to fully illuminate" the terms regarding the potential release and Plaintiff's counsel's fee award.² (R. & R. 8; see Tr. 3:6-4:20, 8:18-22, 12:19-25.) The parties have telegraphed, however, that at least one of the principal concerns raised by the Cheeks court is present in this case: an overbroad release provision. At the conference before Magistrate Judge Mann, the parties indicated that in exchange for voluntary dismissal of the case without prejudice, Plaintiff may release generally all possible claims against Defendants. (See R. & R. 8; Tr. 3:6-4:20, 5:18-23.) Tellingly, Plaintiff's counsel indicated that, were the release provision subject to judicial scrutiny, the parties would likely narrow its terms. (See Tr. 5:18-23.) To put it differently, absent judicial scrutiny, an overboard release potentially of the sort decried by the court in Cheeks would remain in this settlement agreement. The Court cannot abide by such an outcome.

Plaintiff's counsel maintains that the Court need not be concerned with this potentiality because the release could later be deemed unenforceable as a matter of law. (See Pl.'s Obj. 9-10.) The Court does not derive comfort from that possibility. In pressing his point, Plaintiff's counsel contends that the court in Cheeks held that "a settlement agreement and release not approved by the court is not enforceable under the FLSA." (Id. ) The court in Cheeks arrived at no such holding. Instead, the Cheeks court looked for guidance to early Supreme Court decisions and other circuit decisions that arose in the context of whether a private FLSA settlement is enforceable. See 796 F.3d at 202-04.³ The Cheeks court then made clear that, while useful, those cases did not speak directly to the issue before the court, namely, "whether the parties can enter into a private stipulated dismissal of FLSA claims with prejudice, without the involvement of the district court or [U.S. Department of Labor ("DOL") ], that may later be enforceable." Id. at 204. Even if the Cheeks decision could be read as urged by Plaintiff's counsel, the Cheeks court was not dissuaded from finding—as the Court does here—that judicial review of the settlement was nonetheless warranted.

In any event, as Magistrate Judge Mann ably noted, the realities of FLSA litigation must be taken into account when assessing whether judicial scrutiny is advised in the settlement of any FLSA matter, particularly where a potentially overbroad release is implicated. The typical FLSA plaintiff may be unaware of his ability to challenge the enforceability of a release. (See R. & R. 9.) And, even if he did, the Court questions whether he would be able to secure representation to take on a suit that "from the outset poses an additional obstacle to recovery in the form of an ambiguously enforceable settlement agreement." (Id. ) Moreover, even assuming a plaintiff could overcome the release provision, he might be precluded from prosecuting an action, in any event, as the statute of limitations may have run since the commencement of the initial action. This outcome is not remote given the fairly short two-year statute of limitations that governs most FLSA claims.⁴ See 29 U.S.C. § 255(a) ; Ethelberth v. Choice Sec. Co. , 91 F. Supp. 3d 339, 356 (E.D.N.Y. 2015).

This Court is not the first to recognize the potential preclusive effect of a dismissal without prejudice when coupled with the statute of limitations. Courts have cast dismissals without prejudice as de facto dismissals with prejudice in at least two other contexts: Rule 4(m) dismissals for failure to execute service in a timely manner and dismissals for failure to exhaust administrative remedies pursuant to the Prison Litigation Reform Act ("PLRA"). In the Rule 4(m) context, the court in Phillip v. City of N.Y. , No. 09-CV-442, 2012 WL 1598082 (E.D.N.Y. May 7, 2012), observed that although a dismissal under Rule 4(m) is by definition without prejudice to refiling, the plaintiff would not have been able to revive his claim because the statute of limitations had expired. See 2012 WL 1598082, at *3. The court cautioned, "Where dismissal without prejudice would constitute a de facto dismissal with prejudice, the court must carefully consider the impact such an...