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, )

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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

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