United States District Court, D. Connecticut
DAVID SMELSER, individually and on behalf of all similarly situated individuals Plaintiff,
v.
MARTIN'S FAMOUS PASTRY SHOPPE, INC. Defendant.
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 ...