Todd v. Daewon America, Inc.

Filing 139

OPINION AND ORDER: it is ORDERED that the 132 motion for modification of settlement approval is denied. Signed by Honorable Judge Myron H. Thompson on 3/24/2016. (wcl, )

IN THE DISTRICT COURT OF THE UNITED STATES FOR THE
MIDDLE DISTRICT OF ALABAMA, EASTERN DIVISION
KELVIN TODD,

)
)
)
)
)
)
)
)
)

Plaintiff,
v.
DAEWON AMERICA, INC.,
Defendant.

CIVIL ACTION NO.
3:11cv1077-MHT
(WO)

OPINION AND ORDER
Plaintiff
America,
Standards

Kelvin

Inc.,

for

Act

Todd

sued

violations

(FLSA),

29

defendant

of

the

U.S.C.

Daewon

Fair
§§

Labor

201–219.

Jurisdiction is proper pursuant to 29 U.S.C. § 216(b)
(FLSA) and 28 U.S.C. § 1331 (federal question).

This

matter is before the court on the plaintiff’s motion
for

modification

of

settlement

approval.

For

the

reasons below, the motion will be denied.

I. BACKGROUND
Todd

sued

Daewon

under

the

FLSA

alleging

Daewon had underpaid him and other employees.

that
After

the court conditionally certified a plaintiff class,
the parties negotiated a settlement.
agreement

states:

Agreement

is

Plaintiffs
Thousand

a

in

"the

lump

the

Dollars

Settlement

sum

amount

Amount

payment
of

One

($120,000.00)

The settlement

by

this

Defendant

Hundred

made

of

and

payable

to

Twenty
to

the

Plaintiffs' law firm, Arendall Law Firm, Inc., d/b/a
Arendall
Amended
The

&

Arnold,

Settlement

settlement

compromised
wages

and

as

attorney

Agreement

explains

payment

for

liquidated

for

Plaintiffs."

(doc.

no.

131-1)

at

5.

this

sum

represents

“a

that

Plaintiffs'

damages”

and

claimed
that

back-pay

“the

Opt-in

Plaintiffs and their attorneys will decide the amounts
to be distributed to each Plaintiff and the amount of
attorneys' fees, costs and expenses.”
Upon

plaintiff

Todd’s

motion,

Id. at 6.
the

court

held

a

fairness hearing on the proposed settlement agreement.
At

the

fairness

hearing,

At

the

fairness

hearing,

Todd’s attorney explained how the $ 120,000 lump-sum
settlement would be divided:

2

$ 29,771.91 would go to

award back pay for each member of the plaintiff class
for the two and half of the three years they originally
had sought; Todd would receive $ 4,981.81 in “incentive
pay,” to compensate primarily for the time he invested
in

the

lawsuit;

Todd’

attorneys

would

receive

$ 81,246.29 in attorneys’ fees; and $ 4,000.00 would go
towards

the

attorneys’

costs.

Fairness

Hearing

Transcript (doc. no. 136) at 3-4.
Months

later,

Todd

filed

the

instant

motion

requesting that the court modify its approval of the
settlement by requiring--in place of the settlement’s
lump-sum provision--that Daewon issue separate payroll
checks

to

each

member

of

the

plaintiff

class

and

withhold payroll taxes from those checks.

II. ANALYSIS
As grounds for the motion to modify, Todd reports
that, after the fairness hearing, an accountant advised
his

attorney

that

“the

employer

must

perform

FICA

withholding from the employee and match that sum for any

3

payments that Plaintiffs receive.”
(doc. no. 132) at 1-2.

Motion to Modify

Todd further argues that “[t]he

IRS also requires tax withholding based upon W-4 forms
on

file

with

checks.”

Defendant

to

be

made

from

Plaintiffs'

Id. at 2.

Todd cites Internal Revenue Code §§ 3101, 3402, and
6051 in support of his argument.

While I.R.C. § 3101

simply defines rates of income and other taxes and sets
forth an exemption not applicable here, I.R.C. § 3402
states: “[E]very employer making payment of wages ...
shall

deduct

and

withhold

upon

such

wages

a

tax

determined in accordance with tables or computational
procedures

prescribed

§ 3402(a)(1).
recipient.
provisions

It
If

of

by

the

further

the
this

Secretary.”
provides:

employer,
chapter,

in

26

“Tax

paid

violation

fails

to

U.S.C.
by

of

the

deduct

and

withhold the tax under this chapter, and thereafter the
tax against which such tax may be credited is paid, the
tax so required to be deducted and withheld shall not
be

collected

from

the

employer;

4

but

this

subsection

shall in no case relieve the employer from liability
for any penalties or additions to the tax otherwise
applicable in respect of such failure to deduct and
withhold.”

§ 3402(d).

Daewon opposes the motion to modify, noting that
what the plaintiff class now requests is a significant
departure from the parties’ original agreement and that
the plaintiff class was represented by counsel when the
agreement was reached and therefore is bound by its
agreement.
The

court

will

not

require

settlement’s lump-sum provision.

modification

of

the

First, Todd has not

shown that the settlement of a FLSA class action must
be paid in the manner requested by the plaintiff class.
Indeed, lump-sum settlements--in which the settlement
is tendered to the plaintiffs’ attorney--appear to be
common in FLSA class actions.
Panken

et

al.,

An

Overview

See generally Peter M.
Of

Wage

Hour

Laws

And

Litigation: Avoiding The Pitfalls Of Back Wage Claims,
A.L.I.-A.B.A. Course of Study, SS032 ALI-ABA 793, 833-

5

834

(discussing

settlements,

two

one

class counsel).

of

main

which

ways

is

a

of

structuring

lump-sum

payment

to

Daewon does appear to subject itself

to the possibility of penalties by not deducting and
withholding taxes from the back pay it has agreed to
pay under the settlement; however, this is a risk that
Daewon assumed in negotiating this settlement.
Second, Todd was represented by counsel in this
negotiation,
reasonable
addressed
prior

to,

and

he

has

justification
in
or

for

the

the

why

settlement

at,

failed

to

this

present
issue

agreement

fairness

hearing.

or

was

any
not

addressed
As

Daewon

points out, there is no reason that the members of the
plaintiff class cannot pay taxes on the money they are
to receive from the settlement.

And there is no reason

that Todd’s attorney cannot issue the appropriate tax
documentation to members of the plaintiff class when he
issues their checks.
Under

these

circumstances,

6

the

court

sees

no reason to set aside the agreement of the parties.
* * *
Accordingly,

it

is

ORDERED

that

the

motion

for

modification of settlement approval (doc. no. 132) is
denied.
DONE, this the 24th day of March, 2016.
/s/ Myron H. Thompson
UNITED STATES DISTRICT JUDGE