Smelser v. Martin's Famous Pastry Shoppe, Inc.

          RULING ON MOTION FOR SETTLEMENT APPROVAL

          MICHAEL P. SHEA, U.S.D.J.

         Plaintiff David Smelser brought this action against Martin's Famous Pastry Shoppe, Inc. (“Martin's”) on behalf of himself and “all similarly situated individuals.” (ECF No. 1.) He alleged that Martin's (1) failed to pay its distributors overtime wages as required under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq., and Connecticut's wage laws, Conn. Gen. Stat. § 31-68; (2) made unauthorized deductions from its distributors' wages in violation of Conn. Gen. Stat. § 31-71 et seq.; and (3) misclassified distributors as independent contractors under Connecticut law, thereby shifting its business costs onto its distributors and unjustly enriching itself. The Plaintiff brought his state claims as a putative class action under Fed.R.Civ.P. 23 and his federal claim as a putative collective action under FLSA. See 29 U.S.C. § 216(b). On August 24, 2018, the parties reported that the case had settled. They filed a motion for approval of their settlement agreement and supporting materials. (See ECF No. 47.) I held a telephonic status conference on October 31, 2018, during which I identified several potential problems that might prevent me from approving the proposed settlement. The parties requested leave to file an amended settlement agreement and motion for approval. On November 26, 2018, the parties filed their amended motion for approval and motion for the Court to retain jurisdiction to enforce the settlement. (ECF Nos. 54, 56.) For the reasons explained below, the amended motions are DENIED without prejudice.

         I. LEGAL STANDARD

         The Fair Labor Standards act is “a uniquely protective statute.” Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199, 207 (2d Cir. 2015). The Second Circuit has therefore required that district courts review and approve settlements in FLSA actions before they may take effect. See Id. at 206 (“Thus, Rule 41(a)(1)(A)(ii) stipulated dismissals settling FLSA claims with prejudice require the approval of the district court or the DOL to take effect.”). Applying the principles in Cheeks, district courts in the Second Circuit consider a non-exclusive set of five factors in evaluating whether a FLSA settlement is fair and reasonable:

In determining whether the proposed settlement is fair and reasonable, a court should consider the totality of circumstances, including but not limited to the following factors: (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.

Russell v. Broder & Orland, LLC, No. 3:17-CV-1237 (VAB), 2018 WL 3104101, at *4 (D. Conn. June 22, 2018) (quotation marks omitted)).

         II. DISCUSSION^[1]

         The proposed settlement agreement and supporting documents do not provide enough information to determine whether the settlement is fair and reasonable. First, the agreement and proposed notice to collective group members are unclear as to how much money each collective group member would receive and how that amount would be calculated. Second, the release-of- claims provision in the settlement agreement is contradicts the release that the parties propose to obtain from collective group members. Third, the procedures the parties propose to effectuate the settlement appear to be incompatible with the FLSA and the Court's obligation under Cheeks.

         A. Payments to Collective Group Members

         I cannot approve the Settlement Agreement (the “Agreement”) in its current form because the parties have not provided enough information to evaluate “the plaintiff's range of possible recovery” or how the proposed payments to collective group members relate to that range. See Russel, 2018 WL 3104101, at *4. Under the Agreement, Martin's would pay $155, 000.00 into a settlement fund to be disbursed to collective group members who complete a release form to join the lawsuit. (Settlement Agreement, ECF No. 54-3 ¶ 3.24.) The Agreement specifies that the fund would be allocated as follows: First, named-plaintiff David Smelser would receive a $2, 500 service award. (Id. ¶¶ 13.2.1, 13.5.) Second, collective group members who opt in would receive “straight damages.” (Id. ¶ 13.2.2.) The amount that each collective group member would receive in the first disbursement is “listed on Confidential Exhibit 7, ” which the parties sought leave to file under seal. (Id.) If fewer than all eligible collective group members opted in, any money remaining in the settlement fund would be reallocated to those individuals who did opt in, increasing their payments up to 20% beyond the initial disbursement. (Id. ¶ 13.2.3.)^[2]

         Confidential Exhibit 7 is a fourteen-page PDF spreadsheet. (See ECF No. 55-1.) The parties offer no explanation for the information it contains. The document includes 248 columns, and each page includes at least 48 rows. (Id.) Some of the column headings are cut off. (E.g., Id. at 2 (first column label reading “OHDELIVERY” before the text is cut off).) It is not clear whether each row represents a single distributor, a single distribution territory, or something else.^[3] Thus, I cannot determine the total No. of hours that the collective group members worked. While the document includes a column for “Average Hourly Rate, ” the parties do not explain how that rate was calculated and, in particular, whether it is a weighted average or simply the mean of what appear to be weekly hourly rates. (See ECF No. 55-1 at 15.) The document includes three sets of “Routes” without any information about hourly rates or other indication about how the dollar amounts associated with those routes were calculated. (See Id. (listing “Routes 76401/76402/76404, ” “Routes 4201/4202, ” and “Routes 23801/23803” without columns for “Average Hourly Rate” or “Total Discounts”).) There is also no explanation of the “settlement factor” used in the spreadsheet-shown as .85549301. I assume that this figure reflects the parties' assessment of the litigation risk involved in the case, but they do not say that and do not indicate, for example, whether this “factor” was proposed by or approved by the mediator they hired.

         Courts have refused to approve FLSA settlements where the parties failed to provide information about the plaintiffs' wages and hours that would permit an assessment of whether settlement payments represented a fair and reasonable compromise of the plaintiffs' claims. See, e.g., Lopez v. Nights of Cabiria, LLC, 96 F.Supp.3d 170, 177 (S.D.N.Y. 2015) (“Nowhere in the parties' submission is there an actual, bottom-line statement of the dollar amount that each of the named plaintiffs would receive from the proposed settlement. This omission, coupled with the parties' failure to specify on a plaintiff-by-plaintiff basis the alleged No. of hours worked and applicable wages, leaves the Court in a position in which it cannot discharge its duty to determine whether the settlement amount is fair and reasonable as to each of the named plaintiffs.”); see also Douglas v. Allied Universal Sec. Servs., 371 F.Supp.3d 78, 84 (E.D.N.Y. 2019), reconsideration denied, No. 17-CV-6093-SJB, 2019 WL 2296047 (E.D.N.Y. May 30, 2019). Here, the information the parties provided would, at best, allow me to make an educated guess as to the meaning of Exhibit 7. Doing so would not comport with my obligation under Cheeks. I cannot determine with any certainty how much money the collective group members would receive as initial allocations under the settlement or how the parties calculated those amounts. More fundamentally, I cannot determine how the parties calculated the collective group members' hourly wages, how many overtime hours the collective group members worked during the relevant period, or even how many collective group members there are. Thus, I cannot evaluate whether Martin's proposed payments to the collective group are “fair and reasonable.”

         The parties also request that I approve the form notice attached to the Agreement. The notice states:

[T]he allocation of settlement funds will be determined using Defendant's records indicating the total hours worked and compensation earned by each Collective Member[] from May 22, 2016 through May 19, 2018. This information will be used to calculate each Collective Members' average hourly ...