Opinion
23Civ.10983 (GS)
07-23-2024
BRAYAN ANGULO, CAMERON PILLE, JANINA SALORIO, and XANDER BLACK, individually and on behalf of all others similarly situated, Plaintiffs, v. CLOWNS.COM, INC., ADOLPH RODRIGUEZ a/k/a George Rodriguez a/k/a George Adolph Rodriguez a/k/a George Blackstone, and ERICA BARBUTO, Defendants.
ORDER
Honorable Gary Stein United States Magistrate Judge
This action, asserting claims under the Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”), was filed on December 19, 2023 by four individuals who allege they worked as clowns/children's entertainers for Defendants. (Dkt. No. 1 (“Complaint” or “Compl.”) ¶¶ 12-15). The FLSA claim, seeking unpaid overtime, is brought as a collective action on behalf of other similarly situated workers. (Id. ¶¶ 116-21, 148-53). After the Complaint was filed, eight other individuals who work or worked for Defendants joined Plaintiff Angulo as part of the collective asserting FLSA claims. (Dkt Nos. 17-21, 26-28).
The parties have reported that, following a mediation conducted before an experienced private mediator, they have settled both the FLSA claims and the state law claims. (Dkt. No. 50). Normally, of course, a settlement in an FLSA case would require court approval pursuant to Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015). Here, however, the parties have requested that the Court dispense with Cheeks approval due to the nature of the settlement.
Specifically, the parties report that their settlement has been bifurcated: (1) the FLSA claims on behalf of the nine FLSA Plaintiffs are being settled pursuant to the terms of a “Satisfaction Agreement”; and (2) Plaintiffs are separately settling their state law claims and, in connection with that settlement, intend to refile their individual state law claims in state court in Nassau County. (Dkt. Nos. 50 & 50-1). According to the parties, Defendants have agreed to pay the FLSA claims in full, including the unpaid overtime, liquidated damages, and attorneys' fees and costs, “satisfying the federal claims in their entirety.” (Dkt. No. 50 at 1). For this reason, the parties submit that a full application pursuant to Cheeks “is unnecessary.” (Id. at 2). The parties' submission does not include any citations to case law or other authorities supporting this position.
After conducting its own analysis, the Court does not agree that it may dispense with the Cheeks approval process in this case. The parties propose to dismiss the FLSA claims with prejudice pursuant to a Stipulation of Dismissal (Dkt. No. 50-1), thereby invoking Rule 41(a)(1)(A)(ii) of the Federal Rules of Civil Procedure. In Cheeks, however, the Second Circuit “held that any [FLSA] settlement must be reviewed by the district court for compliance with that Act before the parties may dismiss a case with prejudice by joint stipulation pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii).” Samake v. Thunder Lube, Inc., 24 F.4th 804, 807 (2d Cir. 2022) (emphasis added). In Samake, the Court went further and held that even where an FLSA plaintiff files a unilateral dismissal without prejudice pursuant to Rule 41(a)(1)(A)(i), it is proper for the district court to inquire if there is an underlying settlement and, if there is, to “engage in a Cheeks fairness review” of the settlement. Id. at 811.
The Stipulation of Dismissal provides for dismissal of Plaintiffs' state law claims without prejudice. Most of the state law claims are wage-and-hour claims under the NYLL brought on behalf of all Plaintiffs. (Compl. ¶¶ 154-85). In addition, Plaintiff Pille brings a claim for illegal retaliation under the NYLL (id. ¶¶ 186-90), and Plaintiff Salorio brings a claim for tortious interference with contract (id. ¶¶ 191-94).
The Second Circuit's reasoning in Samake is instructive. Unless Cheeks applies in the context of Rule 41(a)(1)(A)(i) as well as (A)(ii) dismissals, the court explained, “parties could evade Cheeks review simply by negotiating a settlement and release, then filing a unilateral dismissal without prejudice rather than a stipulated dismissal.” Id. at 810. That would drain Cheeks of “any vitality” and permit “the same pernicious effects” that Cheeks safeguards against, including “settlements with highly restrictive confidentiality provisions, overbroad releases, and fee awards that [are] disproportionate and unreasonable, as well as settlements that were reached because the plaintiffs [are] unemployed and desperate for any money they could find.” Id. 810-11 (citing Cheeks, 796 F.2d at 205-06).
Similar concerns about allowing parties to evade Cheeks review exist in this case. As Cheeks and Samake make clear, Cheeks review focuses not just on the economic terms of FLSA settlements, but also on various noneconomic terms. Cases too numerous to cite find a settlement's economic terms to be fair and reasonable, but nonetheless deny approval due to impermissible noneconomic terms such as overbroad release, confidentiality, and non-disparagement clauses. This is true even where, as the parties represent is the case here, plaintiffs are to receive full recovery on their unpaid wage claims. See, e.g., Galindo v. East Cnty. Louth Inc., No. 16 Civ. 9149 (KPF), 2017 WL 5195237, at *2, 4 (S.D.N.Y. Nov. 9, 2017) (denying Cheeks approval because of impermissible non-disparagement clause, as well as excessive attorney's fees, despite plaintiff's counsel having documented that “the settlement amount represents a full recovery for the Plaintiff on each of his claims,” including “all back wages, liquidated damages, and statutory penalties”).
Unless the Court conducts a Cheeks review, it cannot know whether the settlement relating to the FSLA claims includes noneconomic provisions of the type forbidden in this Circuit. Hence, the parties' representation that the FLSA claims are being “fully satisfied,” in economic terms (Dkt. No. 50 at 2), does not obviate the need for Cheeks review.
Moreover, the Court is not in a position to conclude, based on the parties' submission alone, that the FLSA Plaintiffs' claims are being fully satisfied. The parties' submission provides no description of how Plaintiff's counsel calculated the amounts due to Plaintiffs. Nor does it state whether the calculations assumed a two-year limitations period (applicable for non-willful FLSA violations) or a three-year period (applicable for willful violations). See, e.g., Arango v. Scotts Co., LLC, No. 17 Civ. 7174 (KMK), 2019 WL 117466, at *3 (S.D.N.Y. Jan. 7, 2019) (“Without any explanation as to how the Parties determined that $29,566.00 constitutes over 100% of Plaintiff's potential recovery, the Court cannot determine whether the settlement sum is fair and reasonable.”).
See 29 U.S.C. § 255(a). The Complaint alleges that Defendants “willfully” violated the FLSA. (Compl. ¶ 150).
The settlement payments to the nine FLSA Plaintiffs-a total of $7,331, ranging from $360 to $1,391 per Plaintiff-are not sizeable. At the same time, the FLSA Plaintiffs are settling their NYLL wage-and-hour claims, on terms that have not been disclosed in any fashion to the Court. These circumstances make it even more difficult for the Court to determine if the FLSA settlement amounts, when viewed in the context of the other economic and noneconomic provisions of the settlement as a whole, are truly fair and reasonable. See Banegas v. Mirador Corp., No. 14 Civ. 8491 (AJN), 2016 WL 1451550, at *3 (S.D.N.Y. Apr. 12, 2016) (although parties represented that settlement provided “full 100% recovery of back wages,” where settlement also included amount for non-FLSA claim, court could not determine, “[w]ithout additional information,” whether FLSA settlement was reasonable).
Defendants (in an argument that Plaintiffs do not join but do not oppose) claim the Court lacks jurisdiction to conduct a Cheeks review. (Dkt. No. 50 at 2). According to Defendants, “there is no longer a case or controversy regarding any federal claim” because “Plaintiffs' federal claims have been fully satisfied prior to Defendants' filing an answer or motion to dismiss.” (Id.). Therefore, “the Court no longer has jurisdiction or no longer should retain jurisdiction of the Action” and should instead simply “so-order” the parties' proposed Stipulation of Dismissal. (Id.).
This argument is unavailing, as it depends on a premise the Court has rejected. When a settlement is subject to court approval, the parties are not entitled to a dismissal of the action under Rule 41. In such a circumstance, a live case or controversy remains, despite the parties' agreement on how it should end. See, e.g., Continental Ass. Co. v. Macleod-Stedman, Inc., 694 F.Supp. 449, 463 (N.D. Ill. 1988) (“a case or controversy still exists when a settlement has been reached subject to court approval”) (citing Havens Realty Corp. v. Coleman, 455 U.S. 363, 371 n.10 (1982)); see also In re Equifax Inc. Customer Data Sec. Breach Litig., 999 F.3d 1247, 1264 (11th Cir. 2021) (“Article III's case-or-controversy requirement is satisfied throughout the settlement process” because “until approval, the settlement is not final, and if the district court rejects the settlement, the parties would continue their litigation”). As discussed above, the Court has concluded that the parties' FLSA settlement is subject to approval under Cheeks. Therefore, this case still presents a live case or controversy, and this Court retains jurisdiction.
Here too, Samake is instructive. In that case, after the plaintiff filed a notice of voluntary dismissal pursuant to Rule 41(a)(1)(A)(i), the district court instructed plaintiff to advise the court whether the parties had reached a settlement and, if so, whether they intended to move for Cheeks approval. Samake, 24 F.4th at 807-08. Plaintiff responded that there was no settlement, but went on to urge the court to review an issue of arbitrability defendants had raised, which the court treated as a withdrawal of plaintiff's voluntary dismissal. Id. at 808. After having lost the arbitrability issue, plaintiff argued on appeal that the district court had been divested of jurisdiction upon the filing of the voluntary dismissal, and thus should not have decided the arbitrability issue. Id. at 808-09.
The Second Circuit, however, rejected that argument, holding that despite plaintiff's filing of a Rule 41(a)(1)(A)(i) voluntary dismissal, “the district court properly retained jurisdiction to conduct a Cheeks review.” Id. at 809; see also id. at 811 (“the Rule 41(a)(1)(A)(i) notice of dismissal did not automatically divest the district court of jurisdiction”). So too here, despite the parties' proposed Stipulation of Dismissal pursuant to Rule 41(a)(1)(A)(ii), this Court retains jurisdiction to review the parties' FLSA settlement for compliance with Cheeks.
Accordingly, the Court concludes that the parties must file a motion seeking approval of the proposed settlement of Plaintiffs' FLSA claims pursuant to Cheeks. The parties are directed to file the motion by Tuesday, August 13, 2024.
Further, under the circumstances of this particular case, the Court believes that to properly consider the fairness of the FLSA settlement, it needs to understand the terms of the separate settlement of the state law claims. The parties are therefore directed to include in their motion papers the settlement agreement for the state law claims or, if no written agreement yet exists, a description of the terms thereof. See Fisher v. S.D. Protection Inc., 948 F.3d 593, 607 n.12 (2d Cir. 2020) (“Where a settlement dismisses with prejudice both FLSA and state law claims, it seems to us a district court must take into account at least the existence of the state law claims in assessing the reasonableness of the settlement, which turns in part on the total potential recovery.”); Velez v. S.T.A. Parking Corp., No. 23 Civ. 4786 (AT), 2023 WL 9183748, at *3 (S.D.N.Y. Dec. 14, 2023) (requiring parties to submit NYLL settlement for review “so that the court can determine whether the terms of the non-FLSA agreement inappropriately affect the terms of the FLSA agreement”) (citation omitted); Doe v. Solera Cap. LLC, No. 18 Civ. 1769 (ER), 2021 WL 568806, at *1 (S.D.N.Y. Jan. 20, 2021) (where parties enter into bifurcated settlement agreements, they “may be required to submit both settlement agreements to the court”); Gallardo v. PS Chicken Inc., 285 F.Supp.3d 549, 553 (E.D.N.Y. 2018) (“unless the court can review [the NYLL settlement agreement], it cannot determine whether the agreement contains other conditions relating to or otherwise affecting the FLSA claims that would be impermissible if executed in an FLSA settlement agreement”).
SO ORDERED.